QUESTION 2 (20 MARKS) Use the following information to compute and evaluate values for each of the following items. Net farm income RM 36 000 Opportunity cost of labour RM 16 000 Average equity RM 220 000 Opportunity cost of RM 8 000 management Average asset value RM 360 000 Family living expenses RM 20 000 Interest expenses RM 11 000 Income and social security RM 4 000 Total revenue RM 109 500 Opportunity cost of capital 10% taxes a) Rate of return on asset (Formula: Rate of return on asset) = (net farm income + interest expenses) unpaid cost of labour- unpaid cost of management X100 Average asset value (4 marks) b) Rate of return on equity (Formula: Rate of return on equity) net farm income from operations- unpaid cost of labour - unpaid cost of management x 100 Average farm equity (4 marks) c) Operating profit margin ratio (Formula: Operating profit margin ratio) = (net farm income + interest expenses) - Operating cost of labour - Oper cost of management X 100 Total revenue (4 marks) 2 d) What can be said about this firm when Rate of return on asset (ROA) higher than Rate of return on equity (ROE)? (4 marks) e) Explain why a business with a higher Working Capital will not necessarily have a higher Current ratio? What do you learn from this information? (4 marks)