Question

Question du The following table was excerpted from a company's financial reports. Millions £ 100,000 10,000 8,000 35,000 190,000 Statement of comprehensive income Total revenue Interest expense Income taxes Net income Statement of changes in stockholders' equity Common equity, beginning balance Issuance of preferred stock Dividends to preferred shares Dividends to common shares Balance sheet Total assets at end of period Total liabilities at end of period Ending preferred stock 1,000 5,000 10,000 2,300,000 2,050,000 40,000 Based on this information, the company's return on common equity is closest to: S O 15% 17% 16%

Answer 1

correct option is "A" -15%

Calculation of earning available to common stockholders: =Net income- dividend to preferred stockholders

                       = 35000 - 5000

                      = 30000

Common equity,Beginning		190000
net income	35000
less:Dividend to preferred stock	-5000
Dividend to common stock	-10000
Total addition to retained earning during the current period		20000
Common equity,Ending		210000
Average common equity =[ending +beginning balance]/2		[210000+190000]/2 200000

Return on common equity =earning available to common stockholders /Average common equity

                      = 30000/ 200000

                     = .15 or 15%