Financial data from the December 31 year-end statements of Sunrise Fashions are given below:

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000,000

Long-term debt (4% interest rate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000

Preferred shares, 7,000, $12 no par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000

Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000

Interest paid on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 952,000

Total assets at the beginning of the year were $9,600,000; total shareholders' equity was $5,700,000. There has been no change in preferred shares during the year. The company's tax rate is 30%.

Required:

1. Compute the return on total assets.

2. Compute the return on common shareholders' equity.

3. Is the company's financial leverage positive or negative? Explain.