Question

Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation.  
  
a. Butters Corporation has a profit margin of 9 percent and its return on assets (investment) is 20 percent. What is its assets turnover? (Round your answer to 2 decimal places.)
  

b. If the Butters Corporation has a debt-to-total-assets ratio of 45.00 percent, what would the firm’s return on equity be? (Input your answer as a percent rounded to 2 decimal places.)
  

    


c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 40.00 percent? (Input your answer as a percent rounded to 2 decimal places.)

Answer 1

Solution:-

A. To Calculate Assets Turnover-

Assets Turnover =

Assets Turnover =

Assets Turnover = 2.22 Times

B. To Calculate Return on Equity-

Return on Equity =

Return on Equity =

Return on Equity = 36.36%

D. To Calculate Return on Equity-

Return on Equity =

Return on Equity =

Return on Equity = 33.33%

If you have any query related to question then feel free to ask me in a comment.Thanks. Please rate.