What is the firms operating liability leverage

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Question: Relationship Between Rates of Return and Leverage (Medium)

a. A firm has a return on common equity of 13.4 percent, a net after-tax borrowing cost of 4.5 percent, and a return of 11.2 percent on net operating assets of $405 million. What is the firms financial leverage?

b. The same firm has a short-term borrowing rate of 4.0 percent after tax and a return on operating assets of 8.5 percent. What is the firms operating liability leverage?

c. The firm reported total assets of $715 million. Construct a balance sheet for this firm that distinguishes operating and financial assets and liabilities.

Reference no: EM131491050

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