Question

Assume J. K. Lumber increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the__________.

A) equity multiplier will decrease.
B) return on assets will decrease.
C) profit margin will decline.
D) return on equity will increase.
E) total asset turnover will increase.

Answer 1

Answer:

D) return on equity will increase.

Explanation: Return on equity is a financial term that explains the net income of a business venture. There are several ways through which the return on equity can be improved or increased in business.

(1) Reduction in the cost of operations or production of goods and services

(2) increase in the price of the product etc.

If the cost of producing a given Quantity of goods is reduced with sales remaining constant,THE RETURN ON EQUITY WILL INCREASE AS A RESULT OF THE INCREASE IN NET INCOME DUE TO REDUCED COST OF OPERATIONS OR PRODUCTION OF GOODS.

Answer 2

Answer: D) return on equity will increase.

Explanation: Return on Equity (ROE) is a measure of management's ability to generate income from the equity available to it and can be said to be a return on asset.

Return on equity can be calculated by dividing net profits by the shareholders' average equity.

It can also be said to be a measure of the profitability of a business in relation to the equity, also known as net assets or assets minus liabilities.