Question: Presented below is information from the annual report of Potter Plastics, Inc. Operating income .........$ 532,150 Bond interest expense .........135,000 .........397,150 Income taxes ...........183,432 Net

Presented below is information from the annual report of Potter Plastics, Inc.

Operating income .........$ 532,150

Bond interest expense .........135,000

.........397,150

Income taxes ...........183,432

Net income ...........$ 213,718

Bonds payable ..........$1,500,000

Common stock ...........875,000

Retained earnings .........575,000

Instructions

(a) Compute the return on common stock equity and the rate of interest paid on bonds. (Assume balances for debt and equity accounts approximate averages for the year.)

(b) Is Potter Plastics, Inc. trading on the equity successfully? Explain.

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