Question

Selected financial data from the June 30 year-end statements of Safford Company are given below: Total...

Selected financial data from the June 30 year-end statements of Safford Company are given below:

Total assets $ 5,400,000
Long-term debt (10% interest rate) $ 720,000
Total stockholders’ equity $ 2,700,000
Interest paid on long-term debt $ 72,000
Net income $ 440,000

Total assets at the beginning of the year were $5,200,000; total stockholders’ equity was $2,500,000. The company’s tax rate is 30%.

Required:

1. Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

2. Compute the return on equity. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

3. Is financial leverage positive or negative?

1. Return on total assets %
2. Return on equity %
3. Financial Leverage
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Compute the return on total assets.

Return on total assets = Net Income / (Average total assets )

Return on total assets = 440000 / (5400000 + 5200000 )/2 = 440000 / 5300000 = 8.3%

2. Compute the return on equity.

ROE = Net Income / (Average stockholders’ equity )

ROE = 440000 / (2700000 + 2500000 )/2 = 440000 / 2600000 = 16.92%

3. Is financial leverage positive or negative?

Financial Leverage = Return on Total Assets - Return on Equity

Financial Leverage = 8.3% - 16.92% = -8.62%

Financial leverage is negative

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total assets $ 5,900,000 Long-term debt (11% interest rate) $ 710,000 Total stockholders’ equity $ 2,500,000 Interest paid on long-term debt $ 78,100 Net income $ 390,000 Total assets at the beginning of the year were $5,700,000; total stockholders’ equity was $2,300,000. The company’s tax rate is 35%. Required: 1. Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e.,...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total assets $ 5,800,000 Long-term debt (9% interest rate) $ 640,000 Total stockholders’ equity $ 2,900,000 Interest paid on long-term debt $ 57,600 Net income $ 450,000 Total assets at the beginning of the year were $5,600,000; total stockholders’ equity was $2,700,000. The company’s tax rate is 35%. Required: 1. Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e.,...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total assets $ 5,800,000 Long-term debt (11% interest rate) $ 670,000 Total stockholders’ equity $ 2,200,000 Interest paid on long-term debt $ 73,700 Net income $ 410,000 Total assets at the beginning of the year were $5,600,000; total stockholders’ equity was $2,000,000. The company’s tax rate is 40%. Required: 1. Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e.,...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total...
Selected financial data from the June 30 year-end statements of Safford Company are given below: Total assets $ 5,500,000 Long-term debt (11% interest rate) $ 730,000 Total stockholders’ equity $ 2,100,000 Interest paid on long-term debt $ 80,300 Net income $ 410,000 Total assets at the beginning of the year were $5,300,000; total stockholders’ equity was $1,900,000. The company’s tax rate is 40%. Required: 1. Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e.,...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31   Assets   Current assets:      Cash $ 19,000      Accounts receivable, net 190,000      Merchandise inventory 390,000      Prepaid expenses 8,000   Total current assets 607,000   Property and equipment, net 870,000   Total assets $ 1,477,000   Liabilities and Stockholders' Equity   Liabilities:      Current liabilities $ 240,000      Bonds payable, 9% 380,000   Total liabilities 620,000   Stockholders’ equity:      Common stock, $10 par value $ 140,000      Retained earnings 717,000   Total stockholders’ equity 857,000   Total liabilities...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31   Assets   Current assets:      Cash $ 24,000      Accounts receivable, net 170,000      Merchandise inventory 310,000      Prepaid expenses 7,000   Total current assets 511,000   Property and equipment, net 900,000   Total assets $ 1,411,000   Liabilities and Stockholders' Equity   Liabilities:      Current liabilities $ 280,000      Bonds payable, 11% 340,000   Total liabilities 620,000   Stockholders’ equity:      Common stock, $10 par value $ 170,000      Retained earnings 621,000   Total stockholders’ equity 791,000   Total liabilities...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31   Assets   Current assets:      Cash $ 19,000      Accounts receivable, net 220,000      Merchandise inventory 330,000      Prepaid expenses 8,000   Total current assets 577,000   Property and equipment, net 850,000   Total assets $ 1,427,000   Liabilities and Stockholders' Equity   Liabilities:      Current liabilities $ 270,000      Bonds payable, 12% 390,000   Total liabilities 660,000   Stockholders’ equity:      Common stock, $5 par value $ 140,000      Retained earnings 627,000   Total stockholders’ equity 767,000   Total liabilities...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31   Assets   Current assets:      Cash $ 22,000      Accounts receivable, net 230,000      Merchandise inventory 370,000      Prepaid expenses 10,000   Total current assets 632,000   Property and equipment, net 860,000   Total assets $ 1,492,000   Liabilities and Stockholders' Equity   Liabilities:      Current liabilities $ 280,000      Bonds payable, 8% 400,000   Total liabilities 680,000   Stockholders’ equity:      Common stock, $10 par value $ 180,000      Retained earnings 632,000   Total stockholders’ equity 812,000   Total liabilities...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31   Assets   Current assets:      Cash $ 6,500      Accounts receivable, net 35,000      Merchandise inventory 70,000      Prepaid expenses 3,500   Total current assets 115,000   Property and equipment, net 185,000   Total assets $ 300,000   Liabilities and Stockholders' Equity   Liabilities:      Current liabilities $ 50,000      Bonds payable, 10% 80,000   Total liabilities 130,000   Stockholders’ equity:      Common stock, $5 par value $ 30,000      Retained earnings 140,000   Total stockholders’ equity 170,000   Total liabilities...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31   Assets   Current assets:      Cash $ 20,000      Accounts receivable, net 170,000      Merchandise inventory 370,000      Prepaid expenses 8,000   Total current assets 568,000   Property and equipment, net 890,000   Total assets $ 1,458,000   Liabilities and Stockholders' Equity   Liabilities:      Current liabilities $ 260,000      Bonds payable, 9% 340,000   Total liabilities 600,000   Stockholders’ equity:      Common stock, $5 par value $ 180,000      Retained earnings 678,000   Total stockholders’ equity 858,000   Total liabilities...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT