Problem: Laurel company has assets of $2 million and long-term, 10% debt of $1,200,000. Hardy Company has assets of $2 million and no long-term debt. The annual operating income (before interest) of both companies is $400,000. Ignore taxes.
1. Compute the rate of return on
a. assets
b. stockholder equity.
2. Evaluate the relative merits of each base for appraising operating management.