a. A firm has a return on common equity of 13.4 percent, a net after-tax borrowing cost

Question:

a. A firm has a return on common equity of 13.4 percent, a net after-tax borrowing cost of 4.5 percent, and a return of 11.2 percent on net operating assets of $405 million. What is the firm's financial leverage?

b. The same firm has a short-term borrowing rate of 4.0 percent after tax and a return on operating assets of 8.5 percent. What is the firm's operating liability leverage?

c. The firm reported total assets of $ 715 million. Construct a balance sheet for this firm that distinguishes operating and financial assets and liabilities.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...