What Must Happen to Asset Turnover to Leave ROE Unchanged

question 3

Multiple Choice

What must happen to asset turnover to leave ROE unchanged from its original 16% level if the profit margin is reduced from 8% to 6% and the leverage ratio increases from 1.2 to 1.6? Asset turnover must:

• A) remain constant.
• B) increase from 1.46 to 2.33.
• C) decrease from 1.74 to 1.67.
• D)increase from 1.38 to 1.67.

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Definitions:

Direction Of Difference

Refers to the predicted or observed direction of relationships or differences between variables in statistical analysis, indicating whether the effect is positive or negative.

Sign Test

A statistical procedure used for assessing whether paired observations have different median values, without assuming any specific data distribution.

Population Probability Distributions

Mathematical functions that provide the probabilities of occurrence of different possible outcomes for an entire population.

Count Data

Refers to data consisting of non-negative integer values that count occurrences of a particular event or condition.