Kearin Corporation has provided the following financial data: Dividends on commo

Question

Kearin Corporation has provided the following financial data:

  

Dividends on common stock during Year 2 totaled $8,000. The market price of common stock at the end of Year 2 was $2.02 per share.

The company's return on equity for Year 2 is closest to:

1.93%

2.97%

71.44%

4.72%

Balance Sheet
December 31, Year 2 and Year 1 Assets Year 2 Year 1 Current assets:       Cash    $33,000 $100,000       Accounts receivable      281,000 250,000       Inventory          122,000 130,000        Prepaid expenses            68,000         80,000 Total current assets 504,000 560,000 Plant and equipment, net                1,016,000      980,000 Total assets     $1,520,000 $1,540,000       Liabilities and Stockholders' Equity Current liabilities:       Accounts payable         $80,000 $100,000       Accrued liabilities          31,000 30,000       Notes payable, short term               56,000       70,000 Total current liabilities   167,000 200,000 Bonds payable      260,000     260,000 Total liabilities        427,000     460,000 Stockholders' equity:       Common stock, $5 par value    500,000 500,000       Additional paid-in capital-common stock         70,000 70,000       Retained earnings               523,000       510,000 Total stockholders' equity            1,093,000    1,080,000 Total liabilities & stockholders' equity    $1,520,000   $1,540,000

Explanation / Answer

Average stockholders equity=(Beginning equity+Ending equity)/2

=(1,093,000+1,080,000)/2=$1086500

ROE=Net income/Average stockholders equity

(21000/1086500)

=1.93%(Approx)

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