Which Statement Regarding the Du Pont Analysis Is Correct

question 118

Multiple Choice

Which statement regarding the Du Pont analysis is correct?

• A)Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase.
• B)Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Without additional information, we cannot tell what will happen to the ROE.
• C)The modified Du Pont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.
• D)Suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will decrease.

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Definitions:

Awareness

The level of consumer knowledge about a product, brand, or issue, which is crucial for marketing and communication strategies.

Interest

The cost of borrowing money, typically defined as a percentage of the principal amount that is charged by lenders to borrowers for the use of the funds.

Promotion-to-Sales Ratio

A metric used to measure the effectiveness of a marketing campaign, calculated by dividing the cost of promotion by the sales generated.

Integrated Marketing Communications

A strategic marketing approach that coordinates all promotional activities (advertising, PR, sales promotion, social media) to provide a consistent message across all channels.