If a Firm Wishes to Retain the Same Return on Equity

question 5

Multiple Choice

If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must ____.

• A) decrease its equity multiplier
• B) increase its equity multiplier
• C) increase sales and increase assets
• D) reduce sales and increase assets

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Definitions:

Spending Variances

The difference between the actual amount of money spent and the budgeted amount for various cost items.

Refurbishment

The process of cleaning, decorating, and providing new equipment or facilities to make a building or item look new again.

Flexible Budget

A budget that adjusts or varies with changes in volume or activity, allowing for more accurate budgeting in variable operating environments.

Machine-Hours

A measure of production time, where one machine-hour equals the operation of one machine for one hour.