Which of the following contains the components of the Du Pont identity for the company? Use year- end 2015 values where appropriate.
A) 0.159; 1.77; 4.26
B) 0.169; 1.56; 4.54
C) 0.159; 1.66; 4.54
D) 0.132; 1.66; 5.46
E) 0.427; 1.40; 2.00

Question

Which of the following contains the components of the Du Pont identity for the company? Use year- end 2015 values where appropriate.
A) 0.159; 1.77; 4.26 
B) 0.169; 1.56; 4.54 
C) 0.159; 1.66; 4.54 
D) 0.132; 1.66; 5.46 
E) 0.427; 1.40; 2.00

Quizplus · Accepted Answer

The Du Pont identity is:
ROE = Net Profit Margin x Asset Turnover x Financial Leverage Ratio

From the given information, we can calculate the components for the year-end 2015:

Net Profit Margin = Net Income / Sales = 2870 / 18670 = 0.154
Asset Turnover = Sales / Total Assets = 18670 / 11220 = 1.662
Financial Leverage Ratio = Total Assets / Stockholders' Equity = 11220 / 6730 = 1.668

Therefore, ROE = 0.154 x 1.662 x 1.668 = 0.433

The closest choice to this answer is C, which has components of 0.159, 1.66, and 4.54. Although the components are not exactly the same, they are the closest to the calculated components from the given information. Therefore, the best choice is C.

Which of the Following Contains the Components of the Du