Analyzing the Use of Debt (Show Calculations)

Cricket Corporations financial statements for 2017 showed the following:

Statement of Earnings
Revenues	$300,000
Expenses	(198,000)
Interest expense	(2,000)
Pretax earnings	100,000
Income tax (30%)	(30,000)
Net earnings	$ 70,000
Statement of Financial Position
Assets	$300,000
Liabilities (average interest rate, 10%)	20,000
Share capital	200,000
Retained earnings	80,000
	$300,000

Notice that the company had a debt of only $20,000 compared with share capital of $200,000. A consultant recommended the following: debt, $100,000 (at 10 percent) instead of $20,000, and share capital of $120,000 (12,000 shares) instead of $200,000 (20,000 shares). That is, the company should finance the business with more debt and less owner contribution.

Required (round to the nearest percent):

1. You have been asked to develop a comparison between (a) the actual results and (b) the results based on the consultants recommendation. To do this, you decided to develop the following schedule:

   Item	Actual Results for 2017	Results with an $80,000 Increase in Debt and an $80,000 Decrease in Equity
   Total debt
   Total assets
   Total shareholders equity
   Interest expense
   Net earnings
   Return on total assets
   Earnings available to shareholders:
   (1) Amount
   (2) Per share
   (3) Return on shareholders equity

2. Based on the completed schedule in (1), provide a comparative analysis and interpretation of the actual results and the consultants recommendation.