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?© BrainMass Inc. brainmass.com June 3, 2020, 10:35 pm ad1c9bdddf
We first calculate the net income needed
ROE = Net ...
The solution explains how to calculate the desired profit margin which would give the promised ROE.