\begin{tabular}{llllll} \hline \multicolumn{1}{l}{ Balance Sheet Data } & & & \multicolumn{2}{l}{ Income Statement Data } \\ \hline 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 & & \end{tabular} 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 use of debt versus equity financing , effectiveness in using the company's assets, and Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. 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. Hydra Cosmetics Inc. DuPont Analysis CHLOE: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Eric 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 ROE? Check all that apply. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. Use more equity financing in its capital structure, which will increase the equity multiplier. 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. \begin{tabular}{llllll} \hline \multicolumn{1}{l}{ Balance Sheet Data } & & & \multicolumn{2}{l}{ Income Statement Data } \\ \hline 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 & & \end{tabular} 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 use of debt versus equity financing , effectiveness in using the company's assets, and Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. 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. Hydra Cosmetics Inc. DuPont Analysis CHLOE: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Eric 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 ROE? Check all that apply. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. Use more equity financing in its capital structure, which will increase the equity multiplier. 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