The following table describes certain financial results for three companies during 2X08, 2X09 and 2X10:

Income Before Interest and Taxes 2X08 Tree Company $50,000 Shrubs Company 50,000 Flower Company 50,000

2X09 Tree Company $30,000 Shrubs Company 30,000 Flower Company 30,000

2X10 Tree Company $15,000 Shrubs Company 15,000 Flower Company 15,000

Each company has total assets of $250,000 in each year. Tree Company has no debt, Shrubs Company has $100,000 of debt at an interest rate of 10%, and Flower Company has $150,000 of debt at a 14% interest rate. Shrubs and Flower have no other debt or liabilities. Assume no taxes.

a. For each company, and for each year, determine 1. the rate of return on total assets, and 2. the rate of return on stockholders' equity.

b. For each company, and for each year, state whether the company's use of debt leverage is favorable, unfavorable, or not applicable.