Selected financial data from the June 30 year-end statements of Safford Company are given

Total assets at the beginning of the year were $3,000,000; total stockholders’ equity was $2,200,000. There has been no change in preferred stock during the year. The company’s tax rate is 30%.

Required:

1. Compute the return on total assets.
2. Compute the return on common stockholders’ equity.
3. Is financial leverage positive or negative? Explain.

$3,600,000 Total assets Long-tem debt (12% interest rate) S500,000 S900,000 Preferred stock, $100 par, 8% Total stockholders' equity S2,400,000 Interest paid on long-tem debt S60,000 $280,000 Net income