Mr. Agirich has provided the following information and ratios for the Aggie Farms 20X0 operations:

Average Total Assets = $840,000

Average Total Liabilities = $395,000

Net Farm Income before taxes = $74,800

Interest Paid and accrued = $26,000

Income Taxes Paid = $9,000

Ra = Net Farm Income before tax + Interest/Average Farm Assets

Assets=Debt + Equity

Based on this information, what is the projected Rate of Return on Equity after taxes, for Aggie Farms in 20X1? (Assume that the tax rate, t is 15% and the Rate of Return on Assets before taxes, Ra , will continue as reflected for 20X0 and that the future cost of debt, i, will be 10%. Use the equation presented in class to calculate the projected r. Use the information above to calculate Ra . Remember that Net Farm Income before taxes is from the Income statement and is after interest.

12-3

What is the projected Ra for Aggie Farms in 20X1, if Mr. Agirich projects Ra to be 5%? Keep everything else the same as before.

The projected Rate of Return on Equity after taxes is _______________?

5%

10%

0.5%

None of the above