Question: Explain the profit leverage effect. Show it on this example; assuming the company is able to cut COGS by 1 0 % . What would

Explain the profit leverage effect. Show it on this example; assuming the company is able to cut
COGS by 10%. What would be new pretax profit margin and ROA?
Earnings and Expenses
Sales $50 million
COGS $30 million
Pretax earnings $5 million
Selected Balance Sheet Items
Inventory $2.5 million
Total Assets $8 million

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