Do the assigned problems using Summer Peebles, Inc.’s condensed 2014 financial data below:
Liabilities and Equity
Noncurrent Liabilities (8% Bonds)
Common Stockholders’ Equity
Total Liabilities and Equity
- Net income for 2014 is $157,500.
- Income tax rate is 50%.
- Amounts for total assets and shareholders’ equity are the same for 2013 and 2014.
- All assets and current liabilities are considered to be operating.
- Determine whether leverage (from long-term debt) benefits Rose’s shareholders. (Hint: Examine ROCE with and without leverage.)
- Compute the NOPAT and RNOA (use ending NOA).
- Demonstrate the favorable effect of leverage given the disaggregation of ROCE and your answer to part (B).
Your submission should: