Question

what would happen to return on equity if the debt to total assets ratio decreased to 40 percent?

Answer 1

Dupont equation gives ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

we can rewrite it as
ROE=(Net profit/Sales)*(Sales/debt)*(debt/Assets)*(Assets/equity)

so an increase of 40% in debt to sales should lead to 40% increase in ROE

Answer 2

well

Answer 3

we can't surely decide whether it will affect ROE in a certain way. Has the debt been repaid from the Current profit? if so then, ROE would be reduced. If not then i don't see much difference in the ROE if you go to calculate using Du Pont. It depends on the context