This year Andrews achieved an ROE of 22.5%. Suppose management takes measures that increase Asset turnover (Sales/Total Assets) next year. Assuming Sales, Profits, and financial leverage remain the same, what effect would you expect this action to have on Andrews's ROE?

Andrews ROE will increase.

Andrews ROE will decrease.

Andrews ROE will remain the same.

Financial Summary INQUIRER Round: 2 December 31, 2020 Chester Digby Andrews Baldwin $28.863 ($2,891) $12.808 ($5,662) $14,221 $13.024 $7.404 $13.947 Cash Flow Statement Survey Cash flows from operating activities Net Income (Loss) Adjustment for non-cash items: Depreciation Extraordinary gains/losses/writeoffs Changes in current assets and liabilities: Accounts payable Inventory Accounts receivable Net cash from operations SO 50 $160 $12.691 (54,350) $51,585 $214 $1.841 ($1,142) $11.046 $1,006 ($4,052) ($1,176) $15.990 ($1,711) $4.775 $1.239 $12.588 (561,088) (550,460) (517,100) (531,840) $18.316 Cash flows from investing activities Plant improvements (net) Cash flows from financing activities Dividends paid Sales of common stock Purchase of common stock Cash from long term debt issued Early retirement of long term debt Retirement of current debt Cash from current debt borrowing Cash from emergency loan SO $133 SO $14.685 $9.053 $0 $35.124 $15.000 SO $35.000 SO ($20,000) $15.000 $0 $0 $25,195 SO ($25,225) $28.121 (521,728) $19.966 ($13.954) $16.784 SO $0 $0 Net cash from financing activities $45.000 $51.678 $17.629 $37.144 $35.497 $12.264 $16.519 $18.093 Net change in cash position Balance Sheet Survey Cash Accounts Receivable Inventory Total Current Assets Andrews $59.967 $20.276 $5.802 $85.846 Baldwin $29.148 $9.924 $10.313 $49,385 Chester $30.275 $12.461 $19.064 $61.800 Digby $41,519 $10.428 $7.940 $59.887 Plant and equipment Accumulated Depreciation Total Fixed Assets S213.320 ($88,779) $144,541 $215.760 ($70,200) $145,560 $111.060 ($48,691) $62.369 $209,200 ($77,049) $132.151 Total Assets $230,386 $194.945 $124.169 $192,038 Accounts Payable Current Debt Total Current Liabilities $10.084 $26.300 $36.384 $6.194 $31.266 $37,460 $8.293 $28.064 $38.357 $8.534 $39.421 $45.955 Long Term Debt Total Liabilities $65.609 $101.993 $82.985 $120.445 $24.239 $60.595 $82,125 $128.081 Common Stock Retained Earnings Total Equity $37,081 $91,313 $128.393 $38.973 $37.527 $74,500 $8.935 $54,638 $63.574 $38.643 $27.315 $63.657 Total Liabilities & Owners' Equity $230,386 $194.945 $124.169 $192.038 Income Statement Survey Sales Variable Costs (Labor. Material. Carry) Contribution Margin Depreciation SGA (R&D. Promo, Sales, Admin) Other (Fees, Writeoffs, TQM. Bonuses) EBIT Interest (Short term, Long term) Taxes Profit Sharing Net Profit COMP-XMINQUIRER Andrews $248.696 $138.055 $110.641 $14.221 $22.930 $17.500 $55.990 $10.679 $15.859 $589 $28.863 Baldwin $120.742 $78.440 $42.302 $13.024 $16,519 $2,672 $10.087 $14.535 ($1,557) Chester $151.612 S90.129 $52.483 $7.404 $12.037 $8.991 $26.051 $5.944 $7.038 $281 $12.808 Digby $125,878 $85.230 $41.646 $13.947 $13,582 $7.212 $8.905 $15.615 ($3,049) SO ($2,891) ($5,662) Page 3 Financial Summary INQUIRER Round: 2 December 31, 2020 Chester Digby Andrews Baldwin $28.863 ($2,891) $12.808 ($5,662) $14,221 $13.024 $7.404 $13.947 Cash Flow Statement Survey Cash flows from operating activities Net Income (Loss) Adjustment for non-cash items: Depreciation Extraordinary gains/losses/writeoffs Changes in current assets and liabilities: Accounts payable Inventory Accounts receivable Net cash from operations SO 50 $160 $12.691 (54,350) $51,585 $214 $1.841 ($1,142) $11.046 $1,006 ($4,052) ($1,176) $15.990 ($1,711) $4.775 $1.239 $12.588 (561,088) (550,460) (517,100) (531,840) $18.316 Cash flows from investing activities Plant improvements (net) Cash flows from financing activities Dividends paid Sales of common stock Purchase of common stock Cash from long term debt issued Early retirement of long term debt Retirement of current debt Cash from current debt borrowing Cash from emergency loan SO $133 SO $14.685 $9.053 $0 $35.124 $15.000 SO $35.000 SO ($20,000) $15.000 $0 $0 $25,195 SO ($25,225) $28.121 (521,728) $19.966 ($13.954) $16.784 SO $0 $0 Net cash from financing activities $45.000 $51.678 $17.629 $37.144 $35.497 $12.264 $16.519 $18.093 Net change in cash position Balance Sheet Survey Cash Accounts Receivable Inventory Total Current Assets Andrews $59.967 $20.276 $5.802 $85.846 Baldwin $29.148 $9.924 $10.313 $49,385 Chester $30.275 $12.461 $19.064 $61.800 Digby $41,519 $10.428 $7.940 $59.887 Plant and equipment Accumulated Depreciation Total Fixed Assets S213.320 ($88,779) $144,541 $215.760 ($70,200) $145,560 $111.060 ($48,691) $62.369 $209,200 ($77,049) $132.151 Total Assets $230,386 $194.945 $124.169 $192,038 Accounts Payable Current Debt Total Current Liabilities $10.084 $26.300 $36.384 $6.194 $31.266 $37,460 $8.293 $28.064 $38.357 $8.534 $39.421 $45.955 Long Term Debt Total Liabilities $65.609 $101.993 $82.985 $120.445 $24.239 $60.595 $82,125 $128.081 Common Stock Retained Earnings Total Equity $37,081 $91,313 $128.393 $38.973 $37.527 $74,500 $8.935 $54,638 $63.574 $38.643 $27.315 $63.657 Total Liabilities & Owners' Equity $230,386 $194.945 $124.169 $192.038 Income Statement Survey Sales Variable Costs (Labor. Material. Carry) Contribution Margin Depreciation SGA (R&D. Promo, Sales, Admin) Other (Fees, Writeoffs, TQM. Bonuses) EBIT Interest (Short term, Long term) Taxes Profit Sharing Net Profit COMP-XMINQUIRER Andrews $248.696 $138.055 $110.641 $14.221 $22.930 $17.500 $55.990 $10.679 $15.859 $589 $28.863 Baldwin $120.742 $78.440 $42.302 $13.024 $16,519 $2,672 $10.087 $14.535 ($1,557) Chester $151.612 S90.129 $52.483 $7.404 $12.037 $8.991 $26.051 $5.944 $7.038 $281 $12.808 Digby $125,878 $85.230 $41.646 $13.947 $13,582 $7.212 $8.905 $15.615 ($3,049) SO ($2,891) ($5,662) Page 3