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EXERCISE 15 9 Selected Financial Ratios for Common Stockholders LO2 Selected financial data from the September 30 year-end statements of Kosanka Company are given below Total assets

EXERCISE 15–9 Selected Financial Ratios for Common Stockholders [LO2]

Selected financial data from the September 30 year-end statements of Kosanka Company are given below:

 

Total assets  . . . . . . . . . . . . . . . . . . . . . .

$5,000,000

Long-term debt (12% interest rate) . . . . .

$750,000

Preferred stock, $100 par, 7% . . . . . . . .

$800,000

Total stockholders’ equity . . . . . . . . . . . .

$3,100,000

Interest paid on long-term debt . . . . . . .

$90,000

Net income . . . . . . . . . . . . . . . . . . . . . . .

$470,000

 

Total assets at the beginning of the year were $4,800,000; total stockholders’ equity was

$2,900,000. There has been no change in preferred stock during the year. The company’s tax rate is 30%.

Required:

1.       Compute the return on total assets.

2.       Compute the return on common stockholders’ equity.

3.       Is the company’s financial leverage positive or negative? Explain.

Jun 27 2020 View more View Less

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