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.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 103.2C

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