Warner Ltd decides to expand its operations by applying for an additional loan of $500,000. As...

Transcribed Image Text:

Warner Ltd decides to expand its operations by applying for an additional loan of $500,000. As a result, revenue from ordinary activities is expected to increase by $50,000. Financial data with the expansion and without expansion include: Total assets Total liabilities Revenue from ordinary activities Interest expense Operating expenses Total cash surplus Return on Equity WITH expansion With expansion ($) Without expansion ($) 5,500,000 2,300,000 Return on Asset WITH expansion 850,000 70,000 215,000 300,000 Required: Calculate the Return on Equity (ROE) and Return on Asset (ROA) ratios With and Without the expansion. (4 marks) Return on Equity Without expansion 5,000,000 1,800,000 Return on Asset Without expansion 800,000 50,000 200,000 300,000 b) Discuss some potential issues if an investor only focuses on the Return on Equity and Return on Asset ratios. (2 marks) Warner Ltd decides to expand its operations by applying for an additional loan of $500,000. As a result, revenue from ordinary activities is expected to increase by $50,000. Financial data with the expansion and without expansion include: Total assets Total liabilities Revenue from ordinary activities Interest expense Operating expenses Total cash surplus Return on Equity WITH expansion With expansion ($) Without expansion ($) 5,500,000 2,300,000 Return on Asset WITH expansion 850,000 70,000 215,000 300,000 Required: Calculate the Return on Equity (ROE) and Return on Asset (ROA) ratios With and Without the expansion. (4 marks) Return on Equity Without expansion 5,000,000 1,800,000 Return on Asset Without expansion 800,000 50,000 200,000 300,000 b) Discuss some potential issues if an investor only focuses on the Return on Equity and Return on Asset ratios. (2 marks)