
B-38 SOLUTIONS
17. To find the new level of fixed assets, we need to find the current percentage of fixed assets to full
capacity sales. Doing so, we find:
Next, we calculate the total dollar amount of fixed assets needed at the new sales figure.
The new fixed assets necessary is the total fixed assets at the new sales figure minus the current level
of fixed assts.
18. We have all the variables to calculate ROE using the DuPont identity except the profit margin. If we
find ROE, we can solve the DuPont identity for profit margin. We can calculate ROE from the
sustainable growth rate equation. For this equation we need the retention ratio, so:
b = 1 – .30
b = .70
Using the sustainable growth rate equation and solving for ROE, we get:
Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]
Now we can use the DuPont identity to find the profit margin as:
ROE = PM(TAT)(EM)
19. We have all the variables to calculate ROE using the DuPont identity except the equity multiplier.
Remember that the equity multiplier is one plus the debt-equity ratio. If we find ROE, we can solve
the DuPont identity for equity multiplier, then the debt-equity ratio. We can calculate ROE from the
sustainable growth rate equation. For this equation we need the retention ratio, so:
b = 1 – .30
b = .70
Using the sustainable growth rate equation and solving for ROE, we get: