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The first question:

You have the following data about a business organization:

(1) Number of units sold [500,000 units] - (2) Unit selling price [5] pounds - (3) Unit variable cost [2.5] pounds - (4) Operating fixed costs [600,000 pounds - (5) Debt ratio | Origins [4] - (6) modified

Interest on debts [16] - (7) Total assets [2,000,000] pounds - (8) Tax rate on commercial and industrial profits [20%].

Required:

  • Estimating the rate of return on equity, the rate of return on investment, and the rate of return on assets, with a comparison between these rates.
  • Was the debt used to benefit the owners or not? And why?
  • Find the degree of operating, financing, and total leverage, and explain the significance of each.

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