Footwear has assets of $2 million and a long-term, 10 percent debt of $800,000. Shirley Shoes has assets of $2 million and no long-term debt. The annual operating income (before interest) of both companies is $500,000.
1. Compute the rate of return on
a. Assets available.
b. Shareholders’ equity.
2. Evaluate the relative merits of each base for appraising operating management.