A formula in financial analysis is: Return on equity=net profit margin X total a

Question

A formula in financial analysis is: Return on equity=net profit margin X total asset turnover X equity multiplier. Suppose that the equity multiplier is fixed at 4.0, but that the net profit margin is normally distributed with a mean of 3.8% and a standard deviation of 0.4%, and that the total asset turnover is normally distributed with a mean of 1.5 and a standard deviation of 0.2. Set up and conduct a sampling experiment to find the distribution of the return on equity. Show your results as a histogram to help explain your analysis and conclusions. Use the empirical rules to predict the return on equity.

Explanation / Answer

return on equity=net profit margin X total asset turnover X equity multiplier

net profit margin =NORMINV((RAND(),mean,stdev)

                        =NORMINV((RAND(),0.038,0.004)

total asset turnover =NORMINV((RAND(),mean,stdev)

                            =NORMINV((RAND(),1.5,0.2)

equity multiplier =4.0

net profit margin total asset turnover equity multiplier return on equality 0.042028969 2.190743396 4 0.368298744 0.035054843 1.570162792 4 0.220167243 0.02899049 2.291237653 4 0.265696409 0.036585086 2.667689892 4 0.390390661 0.034427179 0.208310617 4 0.028686188 0.039844619 3.634536628 4 0.579266904 0.035850285 2.039696938 4 0.292494868 0.036462636 5.919015614 4 0.863291642 0.042133466 1.334783331 4 0.224956194 0.034391476 1.563610927 4 0.215099553

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.