By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's operating profit margin is 5% on sales of $4 million? Assume that the reduction in assets has no effect on sales or profit margin
A) $240,000
B) $333,333
C) $400,000
D) $516,167

Question

Quizplus · Accepted Answer

ROA = (sales / assets) × operating profit margin0.10 = ($4,000,000 / assets) × 0.05Assets = $2,000,0000.12 = ($4,000,000 / assets) × 0.05Assets = $1,666,667Reduction in assets = $2,000,000 − 1,666,667Reduction in assets = $333,333

By How Much Must a Firm Reduce Its Assets in Order