QUESTION 9 The following information was drawn from the Year 8 balance sheets of two companies Company Assets Liabilities Common Stock Retained Earnings A 500,000 120,000 300,000 80,000 B 800,000 320,000 240,000 240,000 During Year 8, A Company' net income was $26,600, while B Company' net income was $62,400 Required a Compute the debt to assets ratio to measure the level of financial risk of both companies b Compare the two ratios computed in Requirement a to identify which company has the higher level of financial risk c Compute the return on equity ratio to measure the level of financial risk of both companies d Compare the two ratios computed in Requirement a to identify which company is performing better e Define the term Financial Leverage f Identify the company that is using financial leverage to a greater extent QUESTION 9 The following information was drawn from the Year 8 balance sheets of two companies Company Assets 500 000 800,000 Liabilities 120 000 320,000 Common Stock 300 000 240,000 Retained Earnings 80,000 240,000 During Year 8, A Company' net income was $26,600, while B Company' net income was $62,400 Required a Compute the debt to assets ratio to measure the level of financial risk of both companies b Compare the two ratios computed in Requirement a to identify which company has the higher level of financial risk c Compute the return on equity ratio to measure the level of financial risk of both companies d Compare the two ratios computed in Requirement a to identify which company is performing better e Define the term Financial Leverage f Identify the company that is using financial leverage to a greater extent

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QUESTION 9 The following information was drawn from the Year 8 balance sheets of two companies: Company Assets = Liabilities + Common Stock + Retained

QUESTION 9

The following information was drawn from the Year 8 balance sheets of two companies:

Company Assets = Liabilities + Common Stock + Retained Earnings

A 500,000 = 120,000 + 300,000 + 80,000

B 800,000 = 320,000 + 240,000 + 240,000

During Year 8, A Company' net income was $26,600, while B Company' net income was $62,400.

Required

a. Compute the debt-to-assets ratio to measure the level of financial risk of both companies.

b. Compare the two ratios computed in Requirement a to identify which company has the higher level of financial risk.

c. Compute the return-on-equity ratio to measure the level of financial risk of both companies.

d. Compare the two ratios computed in Requirement a to identify which company is performing better.

e. Define the term Financial Leverage.

f. Identify the company that is using financial leverage to a greater extent.

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QUESTION 9 The following information was drawn from the Year 8 balance sheets of two companies: Company Assets 500.000 800,000 = Liabilities = 120.000 = 320,000 + Common Stock + 300.000 + 240,000 + Retained Earnings + 80,000 + 240,000 During Year 8, A Company' net income was $26,600, while B Company' net income was $62,400. Required a. Compute the debt-to-assets ratio to measure the level of financial risk of both companies. b. Compare the two ratios computed in Requirement a to identify which company has the higher level of financial risk. c. Compute the return-on-equity ratio to measure the level of financial risk of both companies. d. Compare the two ratios computed in Requirement a to identify which company is performing better. e. Define the term Financial Leverage. f. Identify the company that is using financial leverage to a greater extent