E11.1. Leveraging Equations (Easy) The following information is from reformulated financial statements (in millions of dollars): 2008 2007 Operating assets $2,000 $2,700 Short-term debt securities 400 100 Operating liabilities (100) (300) Bonds payable 11,400) (1,300) Book value $900 1,200 Sales 2,100 Operating expenses (1,677) Interest revenue 27 Interest expense (137) Tex expense (tax rate=34%) 106) Earnings (net) $207

a. (1) Calculate the dividends, net of capital contributions, for 2008. (2) Calculate ROCE for 2008; use average book value in the denominate (3) Calculate RNOA for 2008; use the average net operating assets in the denominator. (4) Supply the numbers for the formula ROCE PMXATO+[Financial leverage x (RNOA- Borrowing cost)]

b. The firm's short-term borrowing rate is 4.5 percent after tax. Supply the numbers for the formula RNOA ROOA+ (OLLEV x OLSPREAD)

c. Repeat the exercise in part

(a) using the following information:

2008 2007 Operating assets $2,000 $2,700 Short-term debt securities 800 1,000 Operating liablities (100) (300) Book value $2,700 3,400 Sales 2,100 Operating expenses (1,677) Interest revenue 90 Tax expense (tax rate = 34%) Earings (174) 339