Question

Herman Corporation had net income of $120,000 and paid dividends of $24,000 to common stockholders and $20,000 to preferred stockholders in 2014. Herman Corporation's common stockholders' equity at the beginning and end of 2014s was $450,000 and $550,000, respectively. Herman Corporation's return on common stockholders' equity isa. 24.0%.b. 20.0%.c. 19.2%.d. 15.2%.

Answer 1

Answer:

20%

Explanation:

Return on common stockholders' equity is a ratio that shows how successful a company is in generating a return for the equity holders. It is worked out by dividing the net income available for common stockholders by common stockholders’ equity. It is expressed by the following formula:

Income available to common stockholders

= $\frac{Net Income - Preferred dividend }{ Average common stockholders' equity}$

Thus, return on common stockholders' equity

  = $\frac{120,000 - 20,000}{500,000}$

   = $\frac{100,000}{500,000} *100$

   = 20%