Explain the profit leverage effect. Show it on this example; assuming the company is able to cut

COGS by $10\%.$ What would be new pretax profit margin and ROA?

Earnings and Expenses

Sales $$50$ million

COGS $$30$ million

Pretax earnings $$5$ million

Selected Balance Sheet Items

Inventory $$2\mathrm{.}5$ million

Total Assets $$8$ million