At the End of Year 1 Firm XYZ Has TA=$325

question 12

Short Answer

At the end of year 1 firm XYZ has TA=$325 bn., and it is financed with debt with a book value of $125 mn.and equity with a book value of $200 mn.The firm must pay 10% interest annually on its debt.In year 2, the firm had a net income of $55 mn.The firm's year 2 ROA was ___(i)___, and the firm's year 2 ROE was ___(ii)___.
$\begin{array}{ll}&\mathrm{ROA} & \mathrm{ROE} \\a.&12.0 \% & 27.5 \% \\b.&12.0 \% & 17.1 \% \\c.&16.9 \% & 27.5 \% \\d.&16.9 \% & 17.1 \%\end{array}$

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Definitions:

Depreciation Expense

The distribution of a physical asset's cost over its lifespan, which mirrors the reduction in its value as time progresses.

Comparative Balance Sheet

Financial statements that present the balances of assets, liabilities, and equity at different points in time for comparison purposes.

Indirect Method

An approach to report cash flows from operating activities on the cash flow statement, adjusting net income for changes in non-cash accounts.

Operating Activities

Activities that constitute the primary or main operations of a company, including sales, service, and administrative functions, as reflected in the cash flow statement.