Reference no: EM133078200

Question - Shuttleworth Co. had $100,000 of assets, financed entirely by common shares and retained earnings.  The operating profit was $40,000, and tax was paid on the profits at the rate of 25%.  There was $60,000 of retained earnings before adding the net income for the current year.  The following year the company borrowed $50,000 of debt at an interest rate of 12%, which the company invested in additional assets. The operating profit for Year 2 was $60,000, and tax was paid on the profits at the rate of 25%.  Calculate the return on equity ratio for Year 1 and Year 2.