Question

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., 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

Answer 1