Reference no: EM132474827
Do the assigned problems using Summer Peebles, Inc.'s condensed 2014 financial data below:
Assets
Current Assets $250,000.00
Noncurrent Assets $1,750,000.00
Total Assets $2,000,000.00
Liabilities and Equity
Current Liabilities $200,000.00
Noncurrent Liabilities (8% Bonds) $675,000.00
Common Stockholders' Equity $1,125,000.00
Total Liabilities and Equity $2,000,000.00
Additional Information:
- Net income for 2014 is $157,500.
- Income tax rate is 50%.
- Amounts for total assets and shareholders' equity are the same for 2013 and 2014.
- All assets and current liabilities are considered to be operating.
Required:
Question 1: Determine whether leverage (from long-term debt) benefits Rose's shareholders. (Hint: Examine ROCE with and without leverage.)
Question 2: Compute the NOPAT and RNOA (use ending NOA).
Question 3: Demonstrate the favorable effect of leverage given the disaggregation of ROCE