Summary statements of financial position and statement of earnings information for Eastern Company and Western Company, covering

Question:

Summary statements of financial position and statement of earnings information for Eastern Company and Western Company, covering the first year of operations for both, follows.
The operations of the two businesses are similar, and both companies have effective corporate income tax rates of 25%. Upon investigation, however, you find the following differences:
€¢ Eastern is financed mainly by shareholders' equity, while Western is financed mainly by long-term debt.
€¢ Eastern depreciates its equipment and buildings using the straight-line method with estimated useful lives of 10 years and 20 years, respectively, while Western depreciates its equipment and buildings using the declining-balance method with rates of 20% and 10%, respectively.

Required:
a. Without adjusting for differences in depreciation policy, which company has the higher rate of return on assets (ROA)?
b. Which company has the higher ROA after adjusting for differences in depreciation policy?
c. Using numbers from this example, explain why you should adjust for differences in depreciation policies when comparing companies.
d. Using numbers from this example, explain why the ROA formula includes an adjustment for interest (after taxes) in the numerator.
e. If you were a shareholder or a potential shareholder in these companies, what other rate-of-return ratio would you want to calculate? Why would this ratio provide different insights than the return on assets ratio?