Question

11. In the last 5 years the company recoded decrease in sales. The company decides to undertake new investments, which will allow to improve product characteristics and increase sales. The investment amount is 40.000€ and will be financed with a long-term loan.According to the estimations, it is expected that net profit will increase by 7%, sales will increase by 13%, total assets will increase by 4% and own equity will remain the same. What would be the impact of this decision on ROE? ROE will increase due to increase in the financial leverage ROE will decrease due to increase in the financial leverage ROE will increase due to decrease in the financial leverage ROE will remain the same because financial leverage does not affect ROE

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