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QUESTION
Last year Bell Corp had $200,000 of assets, $300,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 40%.
Last year Bell Corp had $200,000 of assets, $300,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 40%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $150,000. Sales, costs, and net income would not be affected, and the firm would maintain the 40% debt ratio. By how much would the reduction in assets improve the ROE?
