Blue Angel,Inc.generated sales of $420,000 in the year 2014.The accountant provided the following additional information: $$\begin{array} { l r }
\text { Net profit margin } & 3 \% \
\text { Total Shareholder's equity } & \$ 112,000 \
\text { Total assets } & \$ 280,000
\end{array}$$ Using the DuPont model,calculate the return on equity of the company.
A) 1.8%
B) 5%
C) 11.25%
D) 0.8%

Question

Blue Angel,Inc.generated sales of $420,000 in the year 2014.The accountant provided the following additional information: $$\begin{array} { l r } 
\text { Net profit margin } & 3 \% \
\text { Total Shareholder's equity } & \$ 112,000 \
\text { Total assets } & \$ 280,000
\end{array}$$ Using the DuPont model,calculate the return on equity of the company.
A) 1.8%
B) 5%
C) 11.25%
D) 0.8%

Quizplus · Accepted Answer

The DuPont model calculates Return on Equity (ROE) as the product of three components: Net Profit Margin, Asset Turnover, and Equity Multiplier. Given the data:- Net Profit Margin = 3% or 0.03 (Net Profit / Sales)- Sales = $420,000- Total Shareholder's Equity = $112,000- Total Assets = $280,000First, calculate Net Income:Net Income = Net Profit Margin * Sales = 0.03 * $420,000 = $12,600Then, calculate Asset Turnover:Asset Turnover = Sales / Total Assets = $420,000 / $280,000 = 1.5Finally, calculate Equity Multiplier:Equity Multiplier = Total Assets / Total Shareholder's Equity = $280,000 / $112,000 = 2.5Now, calculate ROE using the DuPont model:ROE = Net Profit Margin * Asset Turnover * Equity Multiplier = 0.03 * 1.5 * 2.5 = 0.1125 or 11.25%

Blue Angel,Inc Using the DuPont Model,calculate the Return on Equity of the Provided