DuPont Analysis You Are Considering Investing in Dakota's Security Services

question 60

Essay

DuPont Analysis You are considering investing in Dakota's Security Services.You have been able to locate the following information on the firm: total assets are $50 million,accounts receivable are $1 million,ACP is 15 days,net income is $1.5 million,and debt-to-equity is 2.1 times.All sales are on credit.Dakota's is considering loosening its credit policy such that ACP will increase to 20 days.The change is expected to increase credit sales by 5 percent.Any change in accounts receivable will be offset with a change in debt.No other balance sheet changes are expected.Dakota's profit margin will remain unchanged.How will this change in accounts receivable policy affect Dakota's net income,total asset turnover,equity multiplier,ROA,and ROE?

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Definitions:

Defense Mechanism

A defense mechanism is a psychological strategy unconsciously used to protect oneself from anxiety arising from unacceptable thoughts or feelings.

Anxiety-Arousing Thoughts

Internal cognitions or thoughts that trigger or increase feelings of anxiety, fear, or unease.

Reaction Formation

A defense mechanism where an individual behaves in a way that is opposite to their true feelings or desires.

Defense Mechanism

Psychological strategies deployed by individuals unconsciously to protect themselves from anxiety arising from unacceptable thoughts or feelings.