Final answer:
Reducing Fixed Assets at Martha's Sweet Shop will cause the Return on Assets (ROA) and Asset Turnover (TAT) to increase, but will have no effect on Return on Equity (ROE) and will decrease the Capital Intensity Ratio.
Step-by-step explanation:
The decrease in Martha's Sweet Shop's Fixed Assets (FA) without affecting the shop's operations, sales, or equity would change several financial ratios. The Capital Intensity Ratio (I), which is total assets divided by sales, would decrease because the denominator remains constant while the numerator (total assets) decreases due to the reduction in FA.
The Return on Assets (ROA) (II), calculated as net income divided by total assets, would increase if net income remains stable, since the total assets decrease. The Asset Turnover (TAT) (III), which measures sales generated for every dollar of assets, will increase for the same reason. Lastly, the Return on Equity (ROE) (IV) is computed as net income divided by shareholder's equity. Since equity remains unchanged and net income is stable, ROE is not impacted by the reduction in FA.
Therefore, the correct answer is B: II and III only. Capital Intensity Ratio would decrease, not increase, and ROE would remain the same, so I and IV are not correct.