Producer surplus will increase if the price rises.

By reducing the cost base, the firm is likely to make higher profits. These profits will add to equity and therefore reduce the debt to equity ratio. Paying outstanding bills from suppliers does not reduce the debt to equity ratio as it relates to short-term debt. Paying a one-off dividend to shareholders reduces equity, and raising new funding from bank loans increases long-term debt.

The return on equity can be computed as the product of profit margin, total asset turnover, and financial leverage (measured as total assets divided by equity), or 2 x 6 x 1.2 = 14.4%.

7
FV=(125)(1.06) = 187.95