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3. Profitability ratios, trading on the equity . Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:
3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 20X7:
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Net sales | $1,750,000 |
Interest expense | 120,000 |
Income tax expense | 80,000 |
Preferred dividends | 25,000 |
Net income | 130,000 |
Average assets | 1,200,000 |
Average common stockholders' equity | 500,000 |
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- Compute the profit margin on sales ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
- Does the firm have positive or negative financial leverage? Briefly explain.
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