Laurel Company has assets of €2 million and long-term, 10 per cent debt of €1,200,000. Hardy Company has assets of €2 million and no long-term debt. The annual operating income (before interest) of both companies is €400,000. Ignore taxes.

1. Compute the rate of return on
(a). assets, and
(b). stockholders’ equity.
2. Evaluate the relative merits of each base for appraising operating management.