Use the Following Data to Answer Questions -By Comparing Fraggle Rock's ROE and ROA, the Following Conclusions

question 66

Multiple Choice

Use the following data to answer questions .
From the year-end financial statements of Fraggle Rock Ltd: $$\begin{array} { l r c } & \text { Common } & \text { Preferred } \\\text { Average shareholders' equity } & \$ 1,500,000 & \$ 120,000 \\\text { Average number of shares outstanding } & 100,000 & 30,000 \\\text { Dividends paid } & 50,000 & 90,000 \\\text { Net Income } & \$ 340,000 \\\text { Interest expense } & \$ 22,000 \\\text { Average Total assets } & \$ 2,535,000\end{array}$$
-By comparing Fraggle Rock's ROE and ROA, the following conclusions can be drawn:

• A)the company has effectively used leveraging to increase the shareholders' return.
• B)the company has effectively used leveraging and compromised investor return
• C)the company is over leveraged and needs to reduce its debt levels
• D)the company is currently carrying no long term debt

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