Question 11 10 points Below are some summary numbers for a f

Question 11 (10 points) Below are some summary numbers for a firm for fiscal years 2004 and 2005 (in millions of dollars). 2004 2005 Sales 12,257 12,867 Operating income (after tax) Net financial expense (after tax) Comprehensive income 858 56 802 772 98 674 Average net operating assets Average common equity 4,903 3,503 4,949 2,149 (a) Calculate return on common equity (ROCE), return on net operating assets (RNOA), and net borrowing cost (NBC) for the two years.

Solution

Return on Common Equity = Net Income / Average Common Equity 2004 2005 Comprehensive Income       802.00       674.00 Average Common Equity    3,503.00    2,149.00 Return on Common Equity 22.89% 31.36% Return on Net Operating Assets = Operating Income (After Tax) / Average Net Operating Assets 2004 2005 Operating Income (After Tax)       858.00       772.00 Average Net Operating Assets    4,903.00    4,949.00 Return on Net Operating Assets 17.50% 15.60% 2004 2005 Average Net Operating Assets    4,903.00    4,949.00 Average Common Equity    3,503.00    2,149.00 NFO (NOA - CSE)    1,400.00    2,800.00 Net Financial Expense          56.00          98.00 Net Borrowing Cost 4.00% 3.50%