Reference no: EM132563633

Pizza Delivery Corporation's condensed balance sheets for Year 1 and 2 is reproduced below:

Assets                                                        2018                  2019

Cash . . . . . . . . . . . . . . . . . . . . . . . $ 250,000       $ 450,000

Noncurrent assets . . . . . . . . . . . . 1,750,000          1,750,000

Total assets .. . . . . . . .. . . . . . . .. . $2,000,000          $2,200,000

Liabilities and Equity

Current liabilities . . . . . . . . . . . . . . . $ 200,000            $ 200,000

Noncurrent liabilities (bonds) . . 675,000                       675,000

Common stockholders' equity. . . . . 1,125,000                 1,325,000

Total liabilities and equity . . . . . . . .$2,000,000                $2,200,000

Additional Information:

Net income after tax for 2019 is $180,000. This includes interest expense at the rate of 8% on the non-current bonds. Cash earns 1% interest. Income tax rate is 30%. Comprehensive income for 2019 is $200,000. Dividends were $20,000 in both 2018 and 2019. Current liabilities are entirely comprised of non-interest-bearing accounts payable.

Required:

Question 1: Compute ROE for 2019 and disaggregate it into RNOA, Spread and Leverage. Show all calculations using averagebalance sheet items where appropriate.