Given below is the most recent set of financial statements for BeanSprout Farms.

a. Calculate return on assets and return on equity.
b. Assume the company had $18,000 less of contributed capital and $18,000 more of long-term debt. Recalculate return on assets and return on equity.
c. Assume the company replaced all its long-term debt with equity capital. Recalculate return on assets and return on equity.
d. Discuss how financial leverage affects return on assets and return on equity as shown in the resultsabove.

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Balance Sheet at December 31, 2004 Assets: Income Statement for Year 2004 Sales revenue $82,000 Cost of sales 51,000 Cash Marketable securities Accounts receivable Inventory Machinery, net Land $ 6,000 2,800 Gross margin 5,200 Expenses: 5,000 $31,000 Wages Depreciation Interest Bad debts 14,000 2,000 1,000 3,000 21,000 10,500 20,000 11,000 3,300 Total assets $50.500 Pretax income Taxes (3096) Net income Liabilities and Equity: $3,100 Notes payable (due 2008 12,000 4,000 16,000 15,400 Accounts payable Common stock ($1 par) Paid-in capital Retained earnings Total liabilities and equity $50,500