Return on Owner's Investments

Question 1

Option B – reducing the bank loan by $150000

Answer 1

referred to the decrease in the debt ratio. The reduction in the loan would also
result in a decrease in interest, which could increase the net profit of the business and potentially the net
profit margin. While there is an increase in net profit it is likely that there will be a decrease in the return on
owner’s investment as the owner’s capital will increase.