Selected financial statement data from Texas Telecom, Inc., for Years 5 and 9 are reproduced
below ($ millions):
|
Year 5
|
Year 9
|
|
Income Statement Data
|
|
|
|
Revenues
|
$542
|
$979
|
|
Operating income
|
35
|
68
|
|
Interest expense
|
7
|
0
|
|
Pretax income
|
28
|
68
|
|
Income taxes
|
14
|
34
|
|
Net income
|
|
|
|
Balance Sheet Data
|
|
|
|
Long-term operating assets
|
$ 52
|
$ 63
|
|
Working capital
|
123
|
157
|
|
Total liabilities
|
50
|
0
|
|
Total shareholders" equity
|
125
|
220
|
Required:
a. Calculate return on common equity and disaggregate ROCE for Years 5 and 9 using end-of-year values for computations requiring an average (assume fixed assets and working capital are operating and a 50% tax rate).
b. Comment on Texas Telecom"s use of financial leverage.