QUESTION 1 Nonoperating returns FLEV x Spread 2009: 1.84 x 10.0%= 18.4% 2008: 2.15 9.9% = 21.3% (Note the rounding difference from 21.4% in h, above) Nordstrom 31.7% 13.3% 6.1% 2.18 18.4% 1.84 10.0% TJX 48.3% 38.3% 6.1% 6.28 10.1% 0.29 34.9% Return on equity RNOA NOPM NOAT Nonoperating return FLEV Spread The nonoperating returns for the two companies differ significantly with Nordstrom's nonoperating return of 18.4% nearly double that of TJX (10.1%) due to differences in the degree of financial leverage between the two companies. Nordstrom's FLEV of 1.84 is about six times as high as TJX's at 0.29. TJX has very little debt whereas Nordstrom has significant short and long-term debt levels. Both companies have the same level of nonoperating expenses to nonoperating obligations (3.3% at Nordstrom and 3.4% at TJX), which implies that the two companies have the same cost of debt capital. But TJX does not borrow much and, thus, does not earn a significant nonoperating return for its shareholders What general conclusion can be drawn from these results? QUESTION 1 Nonoperating returns FLEV x Spread 2009: 1.84 x 10.0%= 18.4% 2008: 2.15 9.9% = 21.3% (Note the rounding difference from 21.4% in h, above) Nordstrom 31.7% 13.3% 6.1% 2.18 18.4% 1.84 10.0% TJX 48.3% 38.3% 6.1% 6.28 10.1% 0.29 34.9% Return on equity RNOA NOPM NOAT Nonoperating return FLEV Spread The nonoperating returns for the two companies differ significantly with Nordstrom's nonoperating return of 18.4% nearly double that of TJX (10.1%) due to differences in the degree of financial leverage between the two companies. Nordstrom's FLEV of 1.84 is about six times as high as TJX's at 0.29. TJX has very little debt whereas Nordstrom has significant short and long-term debt levels. Both companies have the same level of nonoperating expenses to nonoperating obligations (3.3% at Nordstrom and 3.4% at TJX), which implies that the two companies have the same cost of debt capital. But TJX does not borrow much and, thus, does not earn a significant nonoperating return for its shareholders What general conclusion can be drawn from these results