Computation of profit margin that the Firm needs in order to achieve the promised ROE, holding everything else constant.
Burger Corp has $500,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $600,000, and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 8.5%. What profit margin would Burger need in order to achieve the promised ROE, holding everything else constant?