• Last year Conklin, Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $295,000 and its net income was $10,600. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $10,250 without changing its sales, assets, or capital structure.

1. Had it cut costs and increased its net income by $10,250, how much would the ROE have changed? (10 points)

If increasing sales or improving margins is not possible how can the firm improve its ROE? What are the pros and cons of this approach? (10 points)