Question - Last year, K9 WebbWear, Inc., reported an ROE of 27 percent. The firm's debt ratio was 60 percent, sales were $20 million, and the capital intensity was 1.25 times. This year, K9 WebbWear plans to increase its debt ratio to 76 percent. The change will not affect sales or total assets, however, it will reduce the firm's profit margin to 9 percent.
Calculate the net income and profit margin for K9 WebbWear last year.
By how much will the change in K9 WebbWear's debt ratio affect its ROE?