BD Hydro increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the:
A) Return on equity will increase.
B) Return on assets will decrease.
C) Profit margin will decline.
D) Equity multiplier will decrease.
E) Price-earnings ratio will increase.

Question

Quizplus · Accepted Answer

When operating efficiency increases and costs decrease while sales remain constant, the company's net income will increase. This leads to an increase in return on equity, as ROE is calculated as net income divided by shareholders' equity.

BD Hydro Increases Its Operating Efficiency Such That Costs Decrease