Chang Corp.has $375,000 of assets,and it uses only common equity capital (zero debt).Its sales for the last year were $595,000,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?
A)9.45%
B)9.93%
C)10.42%
D)10.94%
E)11.49%

Question

Quizplus · Accepted Answer

The correct answer is A.ROE = Net Income / Shareholder Equity15% = $25,000 / $375,000Net Income = $37,500Profit Margin = Net Income / SalesProfit Margin = $37,500 / $595,000Profit Margin = 9.45%