You have a food truck company. It’s a very simple business model. You have 10 trucks. They happen to be new. They are 100k each. Those are the only assets the company has. You buy ingredients and sell them. The trucks depreciate at 20% a year. Currently, interest rates are 5%. Currently, your ROE is 10%. Annual Sales at 2 million. 

1)What is your profit margin, asset turn, and leverage? 

2)What happens if you simply plow earnings back into the business? Ie, you buy a new truck when you have enough money to buy it out of pocket. What will your ROE, margin, turn and leverage look like over time? 

3)What happens if you decide that 10% roe is too low and borrow enough money to double your ROE. Is that possible? What will your ROE, margin turn, and leverage look like over time?

Answer rating: 100% (QA)

1 Profit margin 10 Asset turn 1 Leverage 1 2 ROE 10 Margin 10 Turn 1 Leverage 1 3 ROE 20 Margin ... View the full answer