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Compute ROA, ROE, and ROFL and Interpret the Effects of Leverage Basic income statement and balance sheet information is given below for six different
Compute ROA, ROE, and ROFL and Interpret the Effects of Leverage Basic income statement and balance sheet information is given below for six different cases. For each case, the assets are financed with a mix of non-interest-bearing liabilities, 10% interest-bearing liability, and stockholders' equity. In all cases, assume the statutory tax rate is 40%. Case A B C D E F Average assets $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 Non-interest-bearing liabilities 0 0 0 0 300 300 Interest-bearing liabilities 0 375 750 750 0 450 Average shareholders' equity 1,500 1,125 750 750 1,200 750 Earnings before interest and taxes (EBIT) 180 180 180 120 150 120 a. For each case, calculate the return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL).
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