Suppose Novak Company Experienced a Reduction in Its ROE Over

question 27

Multiple Choice

Suppose Novak Company experienced a reduction in its ROE over the last year.This fall could be attributed to:

• A)an increase in net profit margin.
• B)a decrease in asset turnover.
• C)an increase in leverage.
• D)a decrease in Equity.

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Definitions:

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Target Cost Approach

A pricing method where the selling price is set first, and then the target cost is determined by subtracting a desired profit margin.

Markup

The amount added to the cost of goods to cover overhead and profit, determining the selling price.

Selling Price

The amount of money charged for a product or service, determined by adding a profit margin to the product cost.