This year Erie achieved an ROE of 23.9%. Suppose the Board of Directors of Erie mandates that management take measures to increase financial Leverage (Assets/Equity) next year from 2.6 to 3.2. Assuming Sales, Profits, and Assets remain the same next year, what effect would you expect this new Leverage policy will have on Erie ROE? (Hint - use the DuPont formula) "a. Erie s ROE will decrease. b. Erie s ROE will increase. c. Erie s ROE will remain the same. d. Erie s equity will decrease and the stock price will increase
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