Use two approaches to determine ROE in year 2.

2012 Income Statement ($Million) Net sales Less: Cost of goods sold Less: Depreciation Earnings before interest and taxes Less: Interest paid 1,850 Taxable income 985 156 829 Addition to retained earnings 244 585 605 Less: Taxes 180 Net income 1,065 80 Dividends paid Year 1 and Year 2 December 31 Balance Sheet ($Million) Year Year 2 350 370 720 550 Year I Year 2 Cash Accounts receivable Inventory Subtotal Net fixed assets 100 330 410 840 112 Accounts payable 234 Notes payable 435 Subtotal 781 Long-term debt 400 390 790 500 1,556 1,888 Owner's equity Common shares Retained earnings Subtotal 599 800 1,1061,399 550 556 Total assets 2,396 2,669 Total liabilities and equity 2,396 2,669