Shown below is the liabilities and stockholders’ equity section of the balance sheet for Novak Company and Splish Company. Each has assets totaling $4,327,000. Novak Co.
Current liabilities: $285,000
Long-term debt, 9%: 1,220,000
Common stock ($20 par): 2,090,000
Retained earnings (Cash dividends, $229,000): 732,000
Total: $4,327,000

Splish Co.
Current Liabilities: $855,000
Common stock ($20 par): 2,740,000
Retained earnings (Cash dividends, $333,000): 732,000
Total: $4,327,000

For the year, each company has earned the same income before interest and taxes.

Novak:
Income before interest and taxes: $1,250,000
Interest expense: 109,800
Equals: 1,140,200
Income taxes (20%): 228,040
Net income: $912,160

Splish Co.:
Income before interest and taxes: $1,250,000
Interest expense: 0
Equals: 1,250,000
Income taxes (20%): 250,000
Net income: $1,000,000

At year-end, the market price of Novak’s stock was $101 per share, and Splish’s was $63.50. Assume balance sheet amounts are representative for the entire year.

a) Calculate the return on total assets? Which company is more profitable in terms of return on total assets?
b) Calculate the return on common stock equity? Which company is more profitable in terms of return on common stockholders’ equity?
c) Calculate the Net income per share. Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year.
d1) From the point of view of net income, is it advantageous to the stockholders of Novak Co. to have the long-term debt outstanding?
e) What is the book value per share for each company?