Chang Corp

question 37

Multiple Choice

Chang Corp.has $375,000 of assets,and it uses only common equity capital (zero debt) .Its sales for the last year were $520,000,and its net income was $25,000.Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15.0%.What profit margin would the firm need in order to achieve the 15% ROE,holding everything else constant? Do not round your intermediate calculations.

• A) 11.03%
• B) 8.76%
• C) 10.82%
• D) 11.14%
• E) 12.98%

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Definitions:

GAAP

Generally Accepted Accounting Principles; the common set of accounting principles, standards, and procedures that companies use to compile their financial statements in the US.

Cost Flow Assumption

An accounting principle that determines how costs are allocated and reported, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and average cost methods.

Vendor Allowances

Vendor allowances are funds provided by suppliers to a retailer for various promotional activities aimed at increasing the sale of their products.

Carrying Cost

The total cost of holding inventory, including storage, insurance, taxes, opportunity costs, and depreciation, over a certain period of time.