3. The statement of financial position of BELLA Company as of December 31, 2020 is...
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3. The statement of financial position of BELLA Company as of December 31, 2020 is as follows: Current assets 1,000,000 Non-current assets 2.000.000 Total assets 3.000.000 Current liabilities 500,000 Long-term liabilities 1,000,000 Ordinary Shares 1,000,000 Retained earnings 500.000 Total liabilities and equity 3.000.000 Twenty percent of the current assets are considered permanent. The earnings before interest and taxes total P750.000. The interest on current liabilities is 10% and 15% on long-term liabilities. The applicable tax rate is 30%. a. Compute the return on equity. b. Assuming the interest on current liabilities rises to 25% and the interest on long-term liabilities rises to 20%, compute the return on equity. c. Discuss the effect of interest on the profitability of the operation
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