Answer the following question(s)using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million).Coldbrook Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities.The cost of equity capital is 15%, while the tax rate is 30%.
-Which two ratios are used in the DuPont method of profitability analysis to create return on assets?
A)profit margin and asset turnover
B)asset turnover and return on investment
C)profit margin and operating leverage
D)profit margin and return on sales
E)return on sales and return on assets

Question

Answer the following question(s)using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million).Coldbrook Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities.The cost of equity capital is 15%, while the tax rate is 30%. 
-Which two ratios are used in the DuPont method of profitability analysis to create return on assets?
A)profit margin and asset turnover 
B)asset turnover and return on investment 
C)profit margin and operating leverage 
D)profit margin and return on sales 
E)return on sales and return on assets

Quizplus · Accepted Answer

The DuPont method of profitability analysis breaks down return on assets into two ratios: profit margin (net income divided by sales) and asset turnover (sales divided by total assets). Therefore, the correct answer is A) profit margin and asset turnover.

Answer the Following Question(s)using the Information Below