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  3. question 2 (worth 1.5 points). aa company has a pr

Question 2 (worth 1.5 points). AA company has a profit margin of 5.0%, a total...

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Question 2 (worth 1.5 points). AA company has a profit margin of 5.0%, a total assets turnover ratio of 1.5 times, no debt and therefore an equity multiplier of 1.0, and an ROE of 7.5%. The CFO recommends that the firm borrow money, use the funds to buy back stock, and raise the equity multiplier to 2.5. The size of the firm (assets) would not change. She thinks that operations would not be affected, but interest on the new debt would lower the profit margin to 4%. How does the ROE change? Calculate the old ROE and new ROE using DuPont equation and show the work

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