need help with finance

QUESTION

Last year Oliver Inc. had a total assets turnover of 1.60 and an equity multiplier of 1.85. Its sales were $200.000 and its net income was $10.000. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,000 without changing its s
Computing the ROE using DU-Pont model: ROE = Profit margin x Total asset turnover x Equity multiplier = (Net income / Sales) x 1.60 x 1.85 = ($10,000 / $200,000) x 1.60 x 1.85 = 0.05 x 1.60 x 1.85 = 0.148 or 14.8% Therefore ROE of the company is 14.8% before the company has lowered its costs. Computing ROE after the

hanges have made: ROE = (Net income / Sales) x 1.60 x 1.85 = ($15,000 / $200,000) x 1.60 x 1.85 = 0.075 x 1.60 x 1.85 = 0.222 or 22.2% Therefore, after cutting down the costs, the companys ROE has changed by 7.4%

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