Selected financial statement data from Texas Telecom, Inc., for Years 5 and 9 are reproduced below ($ millions):

Required:

a. Calculate return on common equity and disaggregate ROCE for Years 5 and 9 using end-of-year values for computations requiring an average (assume fixed assets and working capital are operating and a 50% tax rate).

b. Comment on Texas Telecom’s use of financial leverage.

Year 5 Year 9 Income Statement Data Revenues... $542 $979 Operating income. 35 68 Interest expense.. 7 0 Pretax income Income taxes 28 68 14 34 14 34 Net income.. Balance Sheet Data Long-term operating assets...... $ 52 $ 63 Working capital... 123 157 Total liabilities. 50 0 Total shareholders' equity 125 220