Response:
The return on equity (ROE) would be altered by 8.52%
Clarification:
Initially, we determine the existing ROE utilizing the Dupont Formula, yielding ROE as follows:
ROE = Net Income/Sales * Sales/Total Assets * Total Assets/Equity
or
ROE = Net Profit Margin * Total Assets Turnover * Equity Multiplier
- Current ROE = 10600/295000 * 1.4 * 1.75 = 0.0880 or 8.8%
The condition states that net income might rise to 20850 while other factors remain unchanged. Therefore, to find the new ROE, we compute the updated Net Profit margin, keeping the total assets turnover and the equity multiplier constant due to the absence of sales, assets, or capital structure changes.
- New ROE = 20850/295000 * 1.4 * 1.75 = 0.17316 or 17.32%
- The ROE would have shifted by 17.32 - 8.80 = 8.52%
Which of these statements is accurate?
b.
net cash flow plus cash outflow equals cash inflow
Total Cash Inflow essentially encapsulates Cash Receipts, Cash inflow from Asset Sales, and similar sources. Cash Outflow pertains to paid Expenses, purchased Assets, and so forth. Net Cash flow simply refers to the difference between Cash Inflow and Cash Outflow; it can be negative if outflow exceeds inflow or positive if the opposite is true.
Based on the above details, B appears to be the right choice.