Klein Cosmetics Has a Profit Margin of 5

question 91

True/False

Klein Cosmetics has a profit margin of 5.0%, a total assets turnover ratio of 1.5 times, a zero debt ratio and therefore an equity multiplier of 1.0, and an ROE of 7.5%. The CFO recommends that the firm borrow money, use it to buy back stock, and raise the debt ratio to 50% and the equity multiplier to 2.0. She thinks that operations would not be affected, but interest on the new debt would lower the profit margin to 4.5%. This would probably be a good move, as it would increase the ROE from 7.5% to 13.5%.

---

Definitions:

Patterns

Regularities or repeated forms found in both natural and human-made systems, which can be observed in behaviors, thoughts, or occurrences.

Colors

Properties of objects visible due to the different ways objects reflect or emit light, perceived by the human eye and brain.

Motion

The action or process of moving or being moved, often discussed in the context of physics to describe the change in position of an object relative to time.

Pruning

In neuroscience, pruning is the process by which extra neurons and synaptic connections are eliminated over time to increase the efficiency of neuronal transmissions.