The following information is from reformulated financial statements (in millions):

a. (1) Calculate the dividends, net of capital contributions, for 2012.

(2) Calculate ROCE for 2012; use average book value in the denominator.

(3) Calculate RNOA for 2012; use the average net operating assets in the denominator.

(4) Supply the numbers for the formula ROCE = PM × ATO + [Financial leverage × (RNOA – Borrowing cost)]

b. The firm's short-term borrowing rate is 4.5 percent after tax. Supply the numbers for the formula RNOA = ROOA + (OLLEV × OLSPREAD)

c. Repeat the exercise in part (a) using the following information (in millions):

Transcribed Image Text:

2012 2011 Operating assets Short-term debt securities Operating liabilities Bonds payable Book value $2,700 $2,000 100 400 (300) (1,300) 1,200 (100) (1,400) $ 900 Sales 2,100 Operating expenses Interest revenue (1,677) 27 (137) (106) $ 207 Interest expense Tax expense (tax rate = 34%) Earnings (net) 2012 2011 Operating assets Short-term debt securities Operating liabilities Book value $2,700 1,000 (300) 3,400 2,100 (1,677) $2,000 800 (100) $2,700 Sales Operating expenses Interest revenue 90 Tax expense (tax rate = 34%) Earnings (174) $ 339