Problem #2 (Adapted) Selected financial data from the September 30 year-end statements of Green Company are given below: Interest expense on long-term debt Profit P90,000 470,000 Total Assets 5,000,000 750,000 12% interest long term debt* 7% Preference shares, P100 par 800,000 Total Stockholders' 3,100,000 equity *This is the only interest bearing liability Green Company has. The Company's tax rate is 30%. Total assets at the beginning of the year was P4,800,000 and total stockholders' equity was P2,900,000. There has been no change on the preference shares during the year. Required: A. Compute the return on average total assets. В. Compute the return on average ordinary shareholders' equity. С. Is the Company's financial leverage positive or negative? Explain.
Problem #2 (Adapted) Selected financial data from the September 30 year-end statements of Green Company are given below: Interest expense on long-term debt Profit P90,000 470,000 Total Assets 5,000,000 750,000 12% interest long term debt* 7% Preference shares, P100 par 800,000 Total Stockholders' 3,100,000 equity *This is the only interest bearing liability Green Company has. The Company's tax rate is 30%. Total assets at the beginning of the year was P4,800,000 and total stockholders' equity was P2,900,000. There has been no change on the preference shares during the year. Required: A. Compute the return on average total assets. В. Compute the return on average ordinary shareholders' equity. С. Is the Company's financial leverage positive or negative? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Problem #2 (Adapted)
Selected financial data from the September 30 year-end
statements of Green Company are given below:
Interest expense on
long-term debt
Profit
P90,000
470,000
Total Assets
5,000,000
12% interest long term
750,000
debt*
7% Preference shares,
P100 par
800,000
Total Stockholders'
3,100,000
| equity
*This is the only interest bearing liability Green Company has.
The Company's tax rate is 30%. Total assets at the beginning of
the year was P4,800,000 and total stockholders' equity was
P2,900,000. There has been no change on the preference shares
during the year.
Required:
A. Compute the return on average total assets.
B. Compute the return on average ordinary shareholders' equity.
С.
Is the Company's financial leverage positive or negative? Explain.
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