The Following Table Describes Certain Financial Results for Three Companies

question 93

Essay

The following table describes certain financial results for three companies during 2X11,2X12 and 2X13:
$\begin{array}{lrr}&& \text { Income Before Interest and Taxes } \\2X11&\text { Standard, Inc. } & \$ 50,000 \\&\text { Platinum, Inc. } & 50,000 \\&\text { Gold, Inc. } & 50,000 \\&& \text { Income Before Interest and Taxes } \\2X12&\text { Standard, Inc. } & \$ 30,000 \\&\text { Platinum, Inc. } & 30,000 \\&\text { Gold, Inc. } & 30,000\\&& \text { Income Before Interest and Taxes } \\2X13&\text { Standard, Inc. } & \$ 15,000 \\&\text { Platinum, Inc. } & 15,000 \\&\text { Gold, Inc. } & 15,000\\\end{array}$ Each company has total assets of $250,000 in each year.Standard,Inc.,has no debt,Platinum,Inc.,has $100,000 of debt at an interest rate of 10%,and Gold,Inc.,has $150,000 of debt at a 14% interest rate.Platinum and Gold have no other debt or liabilities.Assume no taxes.
a.For each company,and for each year,determine
1. the rate of return on total assets, and
2. the rate of return on common stockholders' equity b.For each company,and for each year,state whether the company's use of debt leverage is favorable,unfavorable,or not applicable.

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