In 2012 and 2013, Inverness reduced debt by $500,000; $200,000 in 2012 and $300,000 in 2013. What would Invernesss ROE in 2012 and 2013 have been had the company paid used this cash to pay dividends to shareholders rather than reduce debt? Assume: Interest expense in 2012 would be increased by $15,000 and interest expense in 2013 would be increased by $35,000 Assume: no change in total assets Under which of the two scenarios would shareholders have been better off? Why?

Inverness ROE with original Interest expense 2013 8.3% 2012 3.9% 2011 0.2% Net Income Sales Sale/Assets 1.408 1.443 1.394 Return on Assets 11.7% 5.7% 0.3% Assets/Equity 1.59 18.5% 1.77 10.0% 1.92 0.6% Return on Equity Inverness Food and Beverage Sources and Uses of Funds 2013 2012 2011 For Year Ending 12/31 ($s in 000s) Operating Activities Net Income +NonCash Charges -Change in Working Capital Cash from Operating Activities $1,200 $300 ($340) $1,160 $550 $150 ($375) $325 $30 $270 ($25) $275 ($500) Investing Activities Plant Property and Equipment Other Total Investing Activities ($500) ($100) ($600) ($250) ($50) ($300) ($50). ($550) Cash from Operations $560 $25 ($275) ($300) $850 Financing Activities Change in Debt New Shares Issued (Retired) - Dividends to Shareholders Cash from Financing Activities SO SO ($200) ($500) ($200) SO ($100) ($300) ($100) $750 Net Change in Cash $60 ($275) $475 Cash Prior Period +Net Change in Cash Cash Current Period 2013 $350 $60 $410 2012 $625 ($275) $350 2011 $150 $475 $625