Austin & Company Has a Debt Ratio of 0

question 20

Multiple Choice

Austin & Company has a debt ratio of 0.5, a total assets turnover ratio of 0.25, and a profit margin of 10 percent. The Board of Directors is unhappy with the current return on equity (ROE) , and they think it could be doubled. This could be accomplished (1) by increasing the profit margin to 12 percent, and (2) by increasing debt utilization. Total assets turnover will not change. What new debt ratio, along with the new 12 percent profit margin, would be required to double the ROE?

• A) 55%
• B) 60%
• C) 65%
• D) 70%
• E) 75%

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Definitions:

Self-Interest

The consideration of one's own advantage or well-being above those of others or the common good.

Mission Statement

A formal summary of the aims and values of a company, organization, or individual, guiding its strategies and decision-making processes.

Key Values

Fundamental beliefs or standards that guide behaviors and decision-making within individuals or organizations.

Ideological Themes

Central beliefs or principles that form the basis of a political, economic, or social system or movement.