What must happen to asset turnover to leave ROE unchanged from its original 16 percent level if the profit margin is reduced from 8 percent to 6 percent and the leverage ratio increases from 1.2 to 1.6? Asset turnover must:

Question

Quizplus · Accepted Answer

To keep the ROE unchanged at 16%, the asset turnover must remain constant. This means that the reduction in profit margin and the increase in leverage ratio will be offset by the same level of activity efficiency as before. Therefore, the answer is A) Remain constant.

What Must Happen to Asset Turnover to Leave ROE Unchanged