BlackCo.                               Blue Co.

                                               2017               2016               2017            2016

NetIncome                         $65,000            $60,000          $25,000          $28,000

Income taxexpense            18,200            17,000             5,000              5,500

Netsales                         2,500,000        2,300,000          650,000          680,000

Totalassets                     500,000            490,000          200,000          210,000

Currentassets                         99,000            130,000          120,000          110,000

Operatingassets               470,000            450,000          190,000          190,000

Operating liabilities         175,000            150,000          50,000          56,000

Weighted average shares

           Outstanding               85,000            85,000          75,000          75,000

Currentliabilities                75,000            100,000          75,000          74,000

Totalliabilities                 350,000            350,000          100,000          100,000

Stockholder’s equity         150,000            140,000          100,000          110,000

Interestexpense                   5,000               6,000             1,500              1,000

Income beforetax               83,200            77,000          30,000          33,500

Cash flow fromoperations     75,000            110,000          110,000          120,000

Cash paid forinvestments      74,000            100,000          70,000          60,000

A. Calculate finanacial leverage andspread. Are both companies using leverage effectively? Explain youranswer. Assume tax rate of 37%

B. Interpret the ROA verus ROE and EPSfor both companies.

C. Compute free cash flow to totaldebt for both companies.