Evercise 8-6

EXERCISE - my w Largir Rose Corporation's condensed balance sheet for Year 2 is reproduced below Assets Current assets $ 250,000 Noncurrent stats 1.250,000 Total assets $2,000,000 Liabilities and Equity Current liabilities Nanturrent abilities (8% bonds) Common stockholders' equity Total liabilities and equity $ 200,000 675,000 1.125,000 $2,000,000 Additional loformation 1. Net income for Year 2 is $157.500 2. Income tax rate is 50% 3. Amounts for total assets and shareholders' equity are the same for Years 1 and 2. 4. All assets and current liabilities are considered to be operating Required a. Determine whether leverage (from long-term debt) benefits Rose's shareholders. (Hint: Examine ROCE with ant without everage) b. Compute Rose's NOPAT and RNOA (use ending NOA). c. Demonstrate the favorable effect of leverage given the disa teregation of ROCE and your answer to part