i wanted to check how you compute this to see if I did this right: What are the
ID: 2362588 • Letter: I
Question
i wanted to check how you compute this to see if I did this right: What are the rate of return on stockholders' equity and the rate of return on common stockholders' equity (rounded to the nearest one-tenth of a percent) given the following informationL Net Income $350,000 Preferred Dividends 20,000 Common Stock 48,000 Common Stockholders Equity 1/1/20011 4,400,000 Total Stockholders Equity 1/1/20011 5,300,000 Total Stockholders Equity 1/1/20011 5,500,000 A. Return on Stockholders equity: 8.1%; Return on Common Stockholders equity: 9.2% B.Return on Stockholders equity: 5.6%; Return on Common Stockholders equity: 6.7% C. Return on Stockholders equity: 7.8%; Return on Common Stockholders equity: 8.9% D. Return on Stockholders equity: 6.5%; Return on Common Stockholders equity: 7.6% I came up with BExplanation / Answer
D. Return on Stockholders equity: 6.5%; Return on Common Stockholders equity
is the right answer.
Reason:
rate of return on stockholders' equity = Net Income/Total Stockholders Equity
= 350000/5500000 = 6.363% when Total Stockholders Equity 1/1/20011 5,500,000
= 350000/5300000 = 6.604% when Total Stockholders Equity 1/1/20011 5,300,000
rate of return on common stockholders' equity = (Net Income - Preferred dividend)/Common Stockholders Equity
= (350000 - 20000) / 4400000 = 330000/4400000 = 7.5%
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