PROBLEM 10 You are considering adding a new product to your firm's existing product line. It should cause a 15 percent increase in your total margin (i.e., new TM = old TM x 1.15), but it will also require a 50 percent increase in total assets (i.e., new TA = old TA x 1.5). You expect to finance this asset growth entirely by debt. If the following ratios were computed before the change, what will be the new return on equity if the new product is added and sales remain constant? Ratios before new product Total margin 10% Total assets turnover 2 Equity multiplier 2 ANSWER