Question

2006 2005 Total current assets $600,000 $560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 150,000 80,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 600,000 600,000 Paid-in-Capital in excess of par-common stock 60,000 60,000 Retained earnings 325,000 210,000 If Net Income is $115,000 and interest expense is $30,000 for 2006, what is the return on stockholders' equity for 2006 (round percent to one decimal place)

Answer 1

Answer:

Return on stockholder equity = 11.2%

Explanation:

Average Stockholder equity

                                            2006        2005

Deferred 9% stock           100,000    100,000

Common stock                 600,000   600,000

Paid in capital -                  60,000     60,000

Common stock                  

Deferred earnings            325,000    210,000

Stockholder equity       $1,085,000  $970,000

Average stockholder equity = $1,085,000 + $970,000 / 2

Average stockholder equity = $1,027,500

Return on stockholder equity = Net Income / Average stockholder equity

Return on stockholder equity = $115,000 / $1,027,500

Return on stockholder equity = 0.11192

Return on stockholder equity = 11.192%

Return on stockholder equity = 11.2%