Last year Altman Corp.had $205,000 of assets,$303,500 of sales,$18,250 of net income,and a debt-to-total-assets ratio of 41%.The new CFO believes the firm has excessive fixed assets and inventory that could be sold,enabling it to reduce its total assets to $152,500.Sales,costs,and net income would not be affected,and the firm would maintain the 41% debt ratio.By how much would the reduction in assets improve the ROE?
A)4.69%
B)4.93%
C)5.19%
D)5.45%

Question

Quizplus · Accepted Answer

The reduction in assets would increase the equity base, thus improving the Return on Equity (ROE). The new ROE is calculated by dividing net income by the new equity, which is derived from the reduced asset base. The improvement in ROE is 5.19%.

Last Year Altman Corp