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    How do you calculate profit margin that would give the required return on equity?

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    Solar Corporation has $500,000 of assets and it uses only common equity capital (zero debt). Its sales for the last year were $600,000 and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 9.25%. What profit margin would Solar need in order to acheive the promised ROE, holding everything else constant?

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    Solution Preview

    We first calculate the net income needed
    ROE = Net ...

    Solution Summary

    The solution explains how to calculate the desired profit margin which would give the promised ROE.