Consider a retailing firm with a net profit margin of 3.5%, a total asset turnover of 1.8, total assets of $44 million, and a book value of equity of $18 million.

a. What is the firm’s current ROE?

b. If the firm increased its net profit margin to 4%, what would be its ROE?

c. If, in addition, the firm increased its revenues by 20% (while maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?

Financial Reporting in Practice AppendixLO1