5 part dupont ROE question dupont, part, investment, delicious, describes

LorrinCFA

Practice Exam Vol 2 Exam 2, Morning
Question 26
Using the Data found in Exhibit 1 and the extended dupont equation, which of the following best describes the impact on delicious’s return on equity for 2009 of eliminating the investment in the us associate.
A . Adjusted ROE is lower than unadjusted ROE
B. Adjusted ROe is higher than unadjusted ROE
C. The investment in the US associate has no impact on adjusted ROE for 2009
The answer is B and the answer indicates that Financial Leverage will not be changed when taking out the investment in in the us associate. I do not understand why that is since the average assets in total asset turnover are adjusted. I would think that if average assets are adjusted there they should also be adjusted in financial leverage.

svgleeson

dont have a single thing in front of me to help there but:
= (NI/EBT)*(EBIT/EBT)*(EBIT/SALES)*(ASSETS/EQUITY)*(SALES/ASSETS)
*so depending upon the consolidation method:
1) Equity Method - remove a noncurrent asset = might not change based on the last 2 items
2) Prop Consol - remove each line item and see
3) Consolidation - def change but consider the minorty interest..
will look when i get home

anish

second portion of Northeast should be EBT/EBIT not EBIT/EBT