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:

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