1. Which is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?
2. Tobi owns a perpetuity that will pay S1,500 a year, starting one year from now. He offers to sell you al of the remaining payments after the next 25 payments have been paid. What price should you offer him for payments 26 onward if you desire a rate of return of 8 percent? What does your offer price illustrate about the value of perpctuities?