Question: In all years under consideration Bayol Company has assets of
In all years under consideration Bayol Company has assets of $600 million, bonds payable of $300 million, and stockholders’ equity of $300 million. The bonds bear interest at 10% per annum. Carmody Company, which is in the same industry, has assets of $600 million and stockholders’ equity of $600 million in each year. Prepare a comparative tabulation of Carmody Company and Bayol Company for each of the 3 years. Show income before interest, interest, net income, ROA, and ROE. The income before interest for both companies was as follows: year 1, $60 million; year 2, $30 million; and year 3, $90 million. Ignore income taxes. Show all monetary amounts in millions of dollars. Comment on the results.
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