True or False: An increase in RDE is always good for shareholders. True: Fase the whole atory. Instead, many investors and analysts look to the OuPbet equaton to study the components of ROE. The Oupont equation can be stated as: ROF=ROA Rawity mudriplier Where ROA is the recum on total assets. be stated as: ROE= Profir margin Tatal atsers numover Eyxiry maldiplier Whern son is the return on total assets. However, given that ROA can be weitsen as the product of profit nargin and total assets furhover, the Dufort equation alse implies that poe can be stated as: BOS = Profit margin Towal axets harnover Bquily mafriplier The profit margin inskater the income eamed on compewy saks. Sthce this ratio is mirongly ishuenced tr costs and the price of sales, kepping casts in check whle kieping prices at a premium wit increash profit margin and lecresse poe (at eise equat). repretents the namber of times the profit margin is earned. The equity muitipier adjusts the return on askets the product of prech margin and total asets turnaver) ubward to rehect the fout that ieterest had been pad to bondhelders betore net income to stocinoisers wav caiculated The abE cotained by waing the Dufent is the same as whot would the obtained br the Gadtional menhod of dviding net income by erarehoider drivers ut roe. Wie the prevous passoge of test to anwer the question that focons: Suppose a firm spek an increase in the number of times is assets are turned orer in a vear. This weald resresent a totat assets turnorer, resiting in a Acoording to the viseo, which of the following represents the abe of a fiem? the the tabie fo metch the mathematical ewprescan with the conrect compotent or the Dufbnt equation. Which of the fellowing most dovely apsrivimakes the firms Roe? 2400% Q.22\% 0.60% 15.00% Now it's time for you to practice what you've learned. Suppose that a firm has a profit margin of 5.00% and an equity multiplier of 1.5, with total sales of $300 millon and total assets of $60 milion. Which of the following most closely approximates the firm's ROE? 1.00% 0.34 34 25,00% 37.50%