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Calculate the rate of return on firm assets

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Reference no: EM132271999

Consider a firm that produces and sells 5,00 units of product annually. The price per unit is $1,000, while variable cost per unit is $700. The annual fixed operating costs, including annual depreciation, are $500,000. The firm has interest bearing debt of $3 million, and no other debt and on its debt the firm pays 12% interest rate annually. It is assumed that the market value of the debt is equal to its book value. The market value of the firm's total assets is $8 million, and the current price per share of common stock of the firm is $10. Firm corporate tax rate is 20%.

a) At the output level of 5,000 units, calculate the rate of return on firm's assets, the degree of its operating leverage, earnings per share, the rate of return on firm's equity, the degree of financial leverage and the degree of total leverage.

Reference no: EM132271999

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