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Rose Corporation”s condensed balance sheet for Year 2 is reproduced below:
Current assets
$ 250,000
Noncurrent assets
Total assets
Liabilities and Equity

Current liabilities
$ 200,000
Noncurrent liabilities (8% bonds)
Common stockholders” equity
Total liabilities and equity
Additional Information:
1. Net income for Year 2 is $157,500.
2. Income tax rate is 50%.
3. Amounts for total assets and shareholders” equity are the same for Years 1 and 2.
4. All assets and current liabilities are considered to be operating.
a. Determine whether leverage (from long-term debt) benefits Rose”s shareholders. (Hint: Examine ROCE with and without leverage.)
b. Compute Rose”s NOPAT and RNOA (use ending NOA).
c. Demonstrate the favorable effect of leverage given the disaggregation of ROCE and your answer to part (b).

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