Burger Corp has $500,000 of assets and it uses only common equity capital (zero debt). Its sales for the last year were $600,000 and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the ROE up to 15%. What profit margin would Burger need in order to achieve the 15% ROE, holding everthing else constant?

12.50%

To calculate the required profit margin for Burger Corp to achieve a 15% return on equity (ROE), we need to use the DuPont analysis formula. The DuPont analysis decomposes the ROE into three components: profit margin (net income/sales), asset turnover (sales/assets), and equity multiplier (assets/equity).

Given information:
Total assets (A) = $500,000
Sales (S) = $600,000
Net income (NI) = $25,000
ROE = 15% = 0.15
Equity multiplier (EM) = 1 (as there is no debt)

We can rearrange the DuPont formula to solve for the required profit margin:
ROE = Profit margin x Asset turnover x Equity multiplier

Rearranging for profit margin:
Profit margin = ROE / (Asset turnover x Equity multiplier)

Substituting the given values:
Profit margin = 0.15 / (Sales / Total assets)

Profit margin = 0.15 / ($600,000 / $500,000)

Profit margin = 0.15 / 1.2

Profit margin = 0.125 = 12.5%

To achieve a 15% ROE, Burger Corp would need a profit margin of 12.5% or higher, assuming everything else remains constant.