A Firm with a Debt-Equity Ratio of 1/2,return on Assets

question 14

Multiple Choice

A firm with a debt-equity ratio of 1/2,return on assets of 15%,and return on debt of 10% will have return on equity of:

• A) 15.00%.
• B) 16.67%.
• C) 20.00%.
• D) 21.17%.

Understand the concept of geometric average rate of return and how to calculate it.

Understand and calculate the excess return on risk-free securities.

Calculate arithmetic return on investments.

Calculate and understand the concept of real rate of return.

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Definitions:

Price To Charge

Price to Charge refers to the amount a business decides to set for its product or service, taking into account costs, competitive prices, and profit margins.

Marginal Costs

The additional cost incurred by producing one additional unit of a product or service.

Variable Costs

Costs that vary directly with the level of production, such as materials and labor, in contrast to fixed costs which remain constant regardless of production level.

Homogeneous Products

Goods that are identical in quality and features, making them interchangeable in the eyes of consumers.