Hope Company has assets of $3 million and long-term, 12% debt of $1,240,000. Crosby Company has assets of $3 million and no long-term debt. The annual operating income (before interest) of both companies is $690,000. Ignore taxes.
1. Compute the rate of return on
a. assets, and
b. stockholders’ equity.
2. Evaluate the relative merits of each base for appraising operating management.