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The DuPont Model Decomposes the Original ROI Formula into Two

question 105

Essay

The DuPont Model decomposes the original ROI formula into two components to show the different choices managers have to improve ROI.What are the terms for the two components and how do you calculate the ratios?


Definitions:

Behavioral Economics

A field of economic research that examines how psychological, cognitive, emotional, cultural, and social factors affect economic decisions of individuals and institutions.

Marginal Benefit

The incremental benefit or enjoyment a consumer receives by using one more unit of a good or service.

Economic Payoff

The financial return or reward received from an investment or decision, measured in terms of profit or loss.

Equity

Fairness; everyone gets his or her fair share. Since people can disagree about what is “fair,” equity is not as well defined a concept as efficiency.

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