19. The duPont formula defines the net return on shareholders' equity as a function of the following components:

• Operating margin • Assetturnover • Interest burden • Financialleverage • Income tax rate Using only the data in the table shown below:

a. Calculate each of the five components listed above for 1985 and 1989, and calculate the return on equity (ROE) for 1985 and 1989, using all of the five components. Show calculations.

b. Briefly discuss the impact of the changes in asset turnover and financial leverage on the change in ROE from 1985 to 1989.

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1985 1989 Income Statement Data Revenues $542 $979 Operating income 38 76 Depreciation and amortization 3 9 Interest expense 3 0 Pretax income 32 67 Income taxes 13 37 Net income after tax 19 30 Balance Sheet Data Fixed assets $41 $70 Total assets 245 291 Working capital 123 157 Total debt 16 0 Total shareholders' equity 159 220