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 14.58 to 2.33.
• D) increase from 4.76 to 9.60.

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Definitions:

Birds

Warm-blooded vertebrates with feathers, capable of flight, with a beak but no teeth, laying hard-shelled eggs.

Fishes

Aquatic, gill-bearing animals that lack limbs with digits, often covered in scales, and residing in both freshwater and saltwater environments.

Flatworm

A group of simple invertebrates known for their flat bodies, including both free-living and parasitic species like tapeworms.