Question

The Alpha Company, located in numerous locations, is a wholesale distributor of computer equipment. The information shown below was taken from the company’s annual reports for the last three years.

Balance Sheet

                                                          year 2              year 1              year 0

Total Assets                                      $270,000                $155,000               $90,000

Accounts Payable                               $23,500                        $19,500                   $17,000

Loans Payable                                     $28,000                       $22,500               $20,000

Long-Term Debt                                $35,000                        $25,000                     $20,000

Preferred Stock                                  $5,000                          $5,000                      $5,000

Common Stock                                   $90,000                       $50,000                      $20,000

Retained Earnings                              $88,500                    $33,000                        $8,000

Total Liabilities &

Stockholders’ Equity                          $270,000                  $155,000                  $90,000

Income Statement

                                                                           year 2                  year 1

Sales                                                                $160,000                       $100,000

Cost of Goods Sold                                        ($120,000)                    ($700,000)

Selling & Administrative Expenses              ($230,000)                   ($200,000)

Interest Expense                                             ($30,000)                      ($20,000)

Income Tax Expense*                                       ($72,900)                   ($47,000)

Net Income                                                        $67,100                     $33,000

*The tax rate for 2018 was 52%.

*The tax rate for 2017 was 58.75%.

                                                                        year 2                 year 1

Preferred Stock Dividends                             $2,000                        $2,000

Common Stock Dividends                                $9,600                        $6,000

a) Calculate Return on Common Shareholder's Equity for year 2

b) Calculate Common Earnings Leverage for year 2

c) Calculate Return on Assets for year 2

d) Calculate Capital Structure Leverage for year 2

Answer 1