EXERCISE 8–1 Refer to the financial data in Case 10–5 (on page 595). In analyzing this company, you feel it is important to differentiate between operating success and financing decisions.

Required:

a. Explain the difference between ABEX’s ROCE in Year 5 and in Year 9. Your analysis should include computation and discussion of the components determining return on common shareholders’ equity.

b. Explain why ABEX’s earnings per share nearly doubled between Year 5 and Year 9 despite the decline in its return on common shareholders’ equity.