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18-20 Accounting Principles Ex. 18-3 (SO. 5) Letterman Corporation decides to expand its operations by issuing $500 of 10% bonds. As a result of the

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18-20 Accounting Principles Ex. 18-3 (SO. 5) Letterman Corporation decides to expand its operations by issuing $500 of 10% bonds. As a result of the additional financing, income from operations is expected to increase $70,000. Financial data prior to and after the expansion are as follows: Before After Total assets Total liabilities Expansion Expansion 700,000 1,200,000 1300,000 1314,000 $2,000,000 $2.514.000 Income from operations Interest expense 550,000 620,000 Income tax expense (30%) 150.000 S 350.000 364.000 Instructions Compute the following ratios before and after expansion. Assume year-end balance sheet amounts are representative of average balances 1. Return on assets 2. Return on common stockholders' equity Debt to total assets Times interest earned 4. Before Expansion Ratio Aft 1. Return on assets 2. Return on common stockholders' equity. 3. Debt to total assets. 4. Times interest earned. 17 Total ondition of a cc ol $649 ating cash flow/ Total debt $1,345,000 ions can be 18.96% otal debt with yearly cash flow St inpicates the ability of the company to cover t

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