Return on Common Stockholders\' Equity Smith & Sons, Inc., disclosed the followi

Question

Return on Common Stockholders' Equity Smith & Sons, Inc., disclosed the following information in a recent annual report: 2015 2016 Net Income $35,000 $55,000 3,000 Average common stockholders' equity 1,200,000 1,500,000 1.50 2.05 21.00 Preferred stock dividends 3,000 Dividend per common share Earnings per share Market price per common share, year-end 1.20 1.90 19.50 calculate the return on common stockholders equity for Smith & Sons for 2015 and 2016 Round answers to one decimal place. (Ex. 0.2345 23.5%) 201510 % 2016 0 Did the return improve from 2015 to 2016? The return on common stockholders' equity # from 2015 to 2016.

Explanation / Answer

Calculation of Return on common stockholder's equity: Return on common stockholder's equity=(Net income-preference dividend)/average common stock holders equity*100 2015 Return on common stockholder's equity=(35000-3000)/1200000*100=2.7% 2016 Return on common stockholder's equity=(55000-3000)/1500000*100=3.5% The return on common stockholder's equity improve from 2015 to 2016 Calculation of dividend yield: Dividend yield= Dividend per share/ market price per share 2015 Dividend yield=1.20/19.50=6.2% 2016 Dividend yield=1.20/21=5.7% The dividend yield decrease from 2015 to 2016

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