(Trading on the Equity Analysis) Presented below is information from the annual report of Potter Plastics, Inc.
|
Operating income |
$ 532,150 |
|
Bond interest expense |
135,000 |
|
397,150 |
|
|
Income taxes |
183,432 |
|
Net income |
$ 213,718 |
|
Bonds payable |
$1,500,000 |
|
Common stock |
875,000 |
|
Retained earnings |
575,000 |
Instructions
(a) Compute the return on common stock equity and the rate of interest paid on bonds.
(b) Is Potter Plastics, Inc. trading on the equity successfully? Explain.