By How Much Must a Firm Reduce Its Assets in Order

Multiple Choice

By how much must a firm reduce its assets in order to improve ROA from 10 percent to 12 percent if the firm's profit margin is 5 percent on sales of $4 million?

A) $240,000
B) $333,333
C) $400,000
D) $516,167 current ROA = (sales/assets) x profit margin
) 10 = ($4 million/assets) x .05
) 10 = $200,000/assets
$2 million = assets
Proposed ROA = (sales/assets) x profit margin
) 12= ($4 million/assets) x .05
) 12 = $200,000/assets
$1,666,667 = assets