Assume that a farmer has $223,500 in Total Assets and $90,500 in Liabilities, faces 20%income tax rate, and 15% consumption rate. Further, assume that the interest rate is10.5%. What is the rate-of-return on assets if the growth rate is 9.5%?

retained earnings = 90500*(1-15%) = 76925 net income = 76925*(1+9.5%)= 84232.875

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What is the rate-of-return on assets if the growth rate is 9.5%?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 14MC

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Assume that a farmer has $223,500 in Total Assets and $90,500 in Liabilities, faces 20%
income tax rate, and 15% consumption rate. Further, assume that the interest rate is
10.5%. What is the rate-of-return on assets if the growth rate is 9.5%?

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