Last year Kruse Corp had $355,000 of assets, $403,000 of sales, $28,250 of net income, and a debt-to-total-assets ratio of 39%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $252,500. Sales, costs, and net income would not be affected, and the firm would maintain the same debt ratio (but with less total debt). By how much would the reduction in assets improve the ROE?
The present amount of assets = 355,000.
Debt to assets = 39%
Total amount of debt = 355,000 X 39% = 138,450
Amount of ...
The solution explains how to determine the improvement in ROE due to reduction in assets