4.20 Calculating and Interpreting the Rate of Return on Common Shareholders' Equity and Its Components. a. Rate of Return on Assets Year 3: [$405 + (65)($245)/[.5($18,048 +$17,787)] = 3.1% Year 4: [S-928 +(65)($271)]/[.5($17,787 + $18,300)) = -4.2% Year 5: [$524 +0.65X($279)[.5($18,300 + $14,127] - 4.4% Profit Margin for ROA Year 3: [$405 + (65)($245)J/$17,633 = 3.2% Year 4: [$-928 + (65)($271)]/$17,786 - 4.2% Year 5: [$524 + (65)($279)]/$18,424 = 3.8% Total Assets Turnover Year 3: $17,633/[.5($18,048 + $17,787)] = 98 Year 4: $17,786/[.5($17,787 +$18,300)] = .99 Year 5: $18,424/[.5($18,300 + $14,127)] - 1.14 b. Rate of Return on Common Shareholders' Equity Year 3: ($405 - $27)[.5($5,766 + $6,037)] = 6.4% Year 4: (8-928 - $25[.5(S6,037 + $5,121)) = -17.1% Year 5: ($524 - $127[.5($5,121 + $4,856)] = 10.3% Profit Margin for ROCE Year 3: ($405 - $27)/$17,633 = 2.1% Year 4: (8-928 - $25)/$17,786 = -5.4% Year 5: ($524 - $127/$18,424 = 2.8% Total Assets Turnover Year 3: $17,633/[.5($18,048 + $17,787)] = 98 Year 4: $17,786/[.5($17,787 + $18,300)] = 99 Year 5: $18,424/[.5($18,300 + $14,127)] = 1.14 Capital Structure Leverage Year 3: [.5($18,048 + $17,787)[.5($5,766 + $6,037)] = 3.04 Year 4: [.5($17,787 +$18,300)[.5($6,037 + $5,121)] = 3.23 Year 5: (5($18,300+ $14,127)[.5($5,121 + $4,856)] = 3.25 a. 4.13 Relating ROA and ROCE. Rate of Return on Assets: [$1,062 + (1 - .35)($64)]/$6,934.5 = 15.9% Profit Margin for ROA: [$1,062 + (1 - .35)($64)]/$5,624 = 19.6% Assets Turnover: $5,624/$6,934.5 = .8 b. Rate of Return on Common Shareholders' Equity: $1,062/$3,443.5 = 30.8% Profit Margin for ROCE: $1,062/$5,624 = 18.9% Assets Turnover: $5,624/$6,934.5 = .8 Capital Structure Leverage Ratio: $6,934.5/$3,443.5 =2.0