The data in Table P2.3 are available for two companies, A and B, all stated in millions.
Question:
(a) Calculate each company's return on equity (ROE) and return on total assets (ROA).
(b) Why Company B's ROE so much higher than Company A's? Does this mean Company B is a better company? Why or why not?
(c) If Companies A and B were combined (merged), what would be the impact on the results on ROE? Under what conditions would such a combination make sense?
Data in Table P2.3
Transcribed Image Text:
Sales S 1.500,000 Manufacturing costs $ 150,000 200,000 100,000 200.000 Direct materials Direct labor Overhead Depreciation Operating expenses Equipment purchase Borrowing to finance equipment Increase in inventories Decrease in accounts receivable Increase in wages payable Decrease in notes puyable Income taxes Interest payment on financing 150,000 400,000 200.000 100,000 20,000 30,000 40,000 272,000 20,000
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a b Because company has higher income but less equit...View the full answer
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