Selected income statement and balance sheet data from Merck & Co.

for Year 9 are reproduced below:

Required:

a. Calculate return on common equity for Year 9 using year-end amounts and assuming no preferred dividends.

b. Disaggregate Merck’s ROCE into operating (RNOA) and nonoperating components. Comment on Merck’s use of leverage. (Assume all assets and current liabilities are operating and a 35% tax rate.)

Balance Sheet Data Current assets. $4,850 Fixed assets, net. 2,400 Total assets. 7,250 Current liabilities 3,290 Long-term debt. 100 Shareholders' equity. 3,860 Total liabilities & shareholders' equity 7,250