Balance Sheet Data Income Statement Data Cash $600,000 Accounts payable $720,000 Sales $12,000,000 Accounts receivable 1,200,000 Accruals 240,000 Cost of goods sold 7,200,000 Inventory 1,800,000 Notes payable 960,000 Gross profit 4,800,000 Current assets 3,600,000 Current liabilities 1,920,000 Operating expenses 3,000,000 Long-term debt 2,400,000 EBIT 1,800,000 Total liabilities 4,320,000 Interest expense 403,200 Common stock 720,000 EBT 1,396,800 Net fixed assets 3,600,000 Retained earnings 2,160,000 Taxes 349,200 Total equity 2,880,000 Net Income $1,047,600 Total assets $7,200,000 Total debt and equity $7,200,000 If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the the total asset turnover ratio, and the And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the company's effectiveness in using the company's assets, and Now, let's see your notes with your ratios, and then we can tolk about possible strategies that will improve the ratlos. I'm going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect. Ratios Value Correct/Incorrect Ratios Value Correct/Incorrect Profitability ratios Asset management ratio Gross profit margin (%) 40.00 Total assets turnover 1.67 Operating profit margin (%) 11.64 Net profit margin (%) 14.55 Financial ratios Return on equity (%) 40.58 Equity multiplier 1.67 CHLOE: OK, It looks like I've got a couple of incorrect values, so show me your calculations, and then we can talk strategies for improvement YOU: I've just made rough calculations, so let me complete this table by inputting the components of each ratio and its value: Ratios Calculation Value Profitability ratios Numerator Denominator Gross profit margin (%) = Operating profit margin (%) Net profit margin (%) Return on equity (%) !! Asset management ratio Total assets turnover Financial ratios Equity multiplier 8 CHLOL I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment Erle would have been very disappointed in me if I had showed him my original work So, now let's switch topics and identify general strategies that could be used to positively affect Hydra's ROE. YOU OK, so given your knowledge of the component ratios used in the DuPont equation, which of the following strategies should improve the company's ROL? Check all that apply. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total assets turnover Reduce the company's operating expenses, its cost of goods sold, and/or the interest rate on its borrowed funds because this will Increase the company's net profit margin. Use more debt financing in its capital structure and increase the equity multiplier. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. CHLOE: I think I understand now. Thanks for taking the time to go over this with me, and let me know when I can return the favor