Question

Monty Corp. decided to issue common stock and used the $449,000 proceeds to redeem all of its outstanding bonds on January 1, 2017. The following information is available for the company for 2017 and 2016. 2017 2016 Net income $ 186,500 $ 140,500 Dividends declared for preferred stockholders 7,100 7,100 Average common stockholders’ equity 1,174,000 808,000 Total assets 1,506,000 1,282,000 Current liabilities 284,000 284,000 Total liabilities 332,000 474,000 (a) Compute the return on common stockholders’ equity for both years. (Round answers to 1 decimal place, e.g. 12.5%.) 2017 2016 Return on common stockholders’ equity ratio % % (c1) Compute the debt to assets ratio for both years. (Round answers to 1 decimal place, e.g. 12.5%.)

Answer 1

2017 2016 (a) Return on Common stockholders' equity 16.5% 15.3% (c) Debt to asset ratio 22.0% 37.0% Working Notes (a) Return on common stockholders' equity 2017 2016 186,500 $ (7,100) 179,400 $ 1,174,000 $ Net Income attributable to common stockholders' equity/ Net Income 140,500 (7,100) Less: Preferred stockholders dividend Net Income attributable to common stockholders' equity (a) $ 133,400 Average Common stockholders' equity (b) $ 808,000 Return on common stockholders' equity Average common stockholders' equity Return on common stockholders' equity (a/b) 15.3% 16.5% (179,400/1,174,000) (133,400/808,000) (c) Debt to asset ratio 2016 2017 332,000 $ 1,506,000 $ Total liabilities/Total Assets $ Total Liabilities (a) 474,000 Total Assets (b) 1,282,000 Debt to assets ratio 37.0% Debt to assets ratio (a/b) 22.0% (332,000/1,506,000) (474,000/1,282,000)