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Paha777 [63]
3 years ago
12

Smith Company gives the following information on the financial statements: Net Income $50,000 Preferred Dividends 8,000 Average

Common Stockholder’s Equity 180,000 Average number of Common Shares Outstanding 250,000 shares Market Price $2 per share What is the rate of return on common stockholder’s equity (to nearest percent)?
Business
1 answer:
ch4aika [34]3 years ago
5 0

Answer: The rate of return on common stockholder’s equity is 23%.

Explanation:

Given that,

Net Income = $50,000

Preferred Dividends = 8,000

Average Common Stockholder’s Equity = 180,000

Average number of Common Shares Outstanding = 250,000 shares

Market Price = $2 per share

Therefore,

Return on equity = \frac{Net\ income - Preferred\ Dividends}{stockholder\ equity}

=  \frac{50000 - 8000}{180000}

= 23%

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