Assets s 40,000 Cash and short-term investments Accounts receivable (net) Invent

Question

Assets s 40,000 Cash and short-term investments Accounts receivable (net) Inventory Property, plant and equipment 30,000 45,000 Total Assets $330,000 Liabilities and Stockholders' Equity Current liabilities Long-term liabilities Stockholders' equity-common s 60,000 75,000 195000 $330,000 Total Liabilities and Stockholders' Equity Sales Cost of goods sold Gross profit Operating expenses s 90,000 45,000 Net income Number of shares of common stock Market price of common stock Dividends per share 15000 5,000 S22 The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the return on common stockholders' equity for Eura? 4.8% 7.7% 23.1% 46.2%

Explanation / Answer

Answer is 7.7%:

Net Income = $15,000
Common Stockholders’ Equity = $195,000

Return on Common Stockholders’ Equity = Net Income / Common Stockholders’ Equity
Return on Common Stockholders’ Equity = $15,000 / $195,000
Return on Common Stockholders’ Equity = 7.7%

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