Answer:
The company's return on common stockholders’ equity for the current year is 8%
Explanation:
<em>Step 1: Determine net income available to common stockholders</em>
The net income available to common stockholder can be expressed as;
net income available to common stockholders=net income-preferred stocks dividends
where;
net income=$171,000
preferred stocks dividends=$10,000×0.06×100=$60,000
replacing;
net income available to common stockholders=171,000-(10,000×0.06×100)=$111,000
<em>Step 2: Determine the company's return on stockholder's equity for the current year</em>
This can be expressed as;
The company’s return on common stockholders’ equity for the year=net income available to common stockholders/(common stock holders equity on January 1+common stockholders equity on December 31)/2
where;
net income available to common stockholders=$111,000
common stock holders equity on January 1=$1,200,000
common stockholders equity on December 31=$1,600,000
replacing;
($111,000/ ($1,200,000 +$1,600,000)/2))=(111,000/1,400,000)×100=7.93%=8%
The company's return on common stockholders’ equity for the current year is 8%
