Which of the following statements is CORRECT?
A) suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%. under these conditions, the roe will decrease.
B) suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. under these conditions, the roe will increase.
C) suppose a firm's total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. without additional information, we cannot tell what will happen to the roe.
D) the modified dupont equation provides information about how operations affect the roe, but the equation does not include the effects of debt on the roe.
E) other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

Question

Quizplus · Accepted Answer

$\begin{array}{lcccc}
&&PM&x&TATO&x&\text { Eq mult. }&=&ROE\
 \text { Old } && 9 \% && 1.0 && 1.666667 && 15 \% \
 \text { New }&& 10 \% && 0.9 && 25 && 20 \%
\end{array}$ 
We see that b is true, thus c must be false. We can also see that d, e, and a are all false.

Which of the Following Statements Is CORRECT