Burger Corp has $468,500 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $778,500, and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would Burger need in order to achieve the 15% ROE, holding everything else constant?
Answer in % without units (i.e. 17.11% -> 17.1 )

ANSWER: 9.0
BUT I WANT TO KNOW HOW TO SOLVE

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abdulmajeedabiodunac abdulmajeedabiodunac · Answer 1 · 2022-07-19T18:46:00+02:00

The profit margin required to achieve 15% targeted ROE is 9.0%

The ROE means return on equity, it is the return earned on shareholders fund or shareholders equity.

Based on the three-way DuPont approach to computing the ROE, the below formula is very relevant to this analysis:

ROE=net profit margin*assets turnover*equity multiplier

ROE=15%

net profit margin=the unknown now(assume it is X)

assets turnover=sales/total assets

assets turnover=$778,500/$468,500

assets turnover=1.6616862326574200

equity multiplier=total assets/total equity

Note the company is entirely financed by equity(zero debt) which means that total assets is the same as total equity

equity multiplier=$468,500 /$468,500

equity multiplier=1.00

15%=X*1.6616862326574200*1.00

15%=X*1.6616862326574200

X=15%/1.6616862326574200

X=9.0%

Find guidance on DuPont equation in the link below:

https://brainly.com/question/18042537

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