Author Question: Using the modified DuPont formula allows the analyst to break Dana Dairy Products return on equity ... (Read 106 times)

V@ndy87 · **on:** Jul 11, 2018

Using the modified DuPont formula allows the analyst to break Dana Dairy Products return on equity into 3 components: the net profit margin, the total asset turnover, and a measure of leverage (the financial leverage multiplier).

Which of the following mathematical expressions represents the modified DuPont formula relative to Dana Dairy Products' 2013 performance? (See Table 3.2)
A) 5.6(ROE) = 2.5(ROA) 2.22(Financial leverage multiplier)
B) 5.6(ROE) = 3.3(ROA) 1.70(Financial leverage multiplier)
C) 4.0(ROE) = 2.5(ROA) 2.00(Financial leverage multiplier)
D) 2.5(ROE) = 5.6(ROA) 2.22(Financial leverage multiplier)

Question 2

As the need for capital increases beyond the optimum capital structure, the cost of debt financing will ________, ________ the firm's weighted average cost of capital.

A) increase; lowering
B) increase; raising
C) decrease; lowering
D) decrease; raising