What is the return to labor and management

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Reference no: EM133662511

Assignment:

Other Information:

Opportunity cost of unpaid labor and management (total): $30,000

Opportunity interest rate: 4%

Average Asset Value: $1,580,000

Average Net Worth: $1,110,000

Use the income statement and the other information to answer the following questions:

1) What is the rate of return on assets (also called percent return to assets)?

2) What is the rate of return on equity (also called percent return to equity)?

3) What is the return to labor and management?

4) Is this farm covering its opportunity costs? That is, are the returns you calculated higher than the related opportunity cost? Does ROE exceed the opportunity interest rate? Does the return to labor and management exceed the opportunity cost? (Note: The question of whether borrowed money is earning an average profit or average loss is a different question. This one concerns the overall profitability and is answered by looking at the returns versus the opportunity costs.)

5) Given your answer in 4, is this farm profitable?

Reference no: EM133662511

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