(Trading on the Equity Analysis) Presented below is information from the annual report of Emporia Plastics, Inc.

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 Emporia Plastics Inc. trading on the equity successfully? Explain.

Operating income $532,150 Bond interest expense 135,000 397,150 Income taxes 183,432 Net income $213,718 Bonds payable $1,000,000 Common stock 875,000 Retained earnings 375,000