Question

December 31, 2019 December 31, 2018 96,000 $ Net Income Preferred Dividends Total Stockholders' Equity Stockholders' Equity attributable to Preferred Stock Number of Common Shares Outstanding 21,000 330,000 30,000 70,000 3,000 314,000 30,000 8,000 16,000

Answer 1

11.

Number of common shares outstanding , Beginning= 8,000

Number of common shares outstanding , Ending = 16,000

Average number of common shares outstanding = (Number of common shares outstanding , Beginning + Number of common shares outstanding , Ending)/2

= (8,000+16,000)/2

= 12,000

( Net Income	-	Preferred dividend)	/	Average number of Common shares outstanding	=	Earning Per Share
(96,000	-	21,000)	/	12,000	=	$6.25

12.

Market price of 1 share	/	Earning per share	=	Price/earning ratio
38	/	6.25	=	6.08

13.

Total stockholders equity, beginning = $314,000

Stockholders equity attributable to preferred stock, beginning = $30,000

Common stockholders equity, beginning = Total stockholders equity, beginning - Stockholders equity attributable to preferred stock, beginning

= 314,000-30,000

= $284,000

Total stockholders equity, Ending = $330,000

Stockholders equity attributable to preferred stock, Ending = $30,000

Common stockholders equity, ending = Total stockholders equity, ending - Stockholders equity attributable to preferred stock, ending

= 330,000-30,000

= $300,000

Average common stockholders equity = (Common stockholders equity, beginning +Common stockholders equity, ending )/2

= (284,000+300,000)/2

= $292,000

(Net income	-	Preferred dividend)	/	Average common stockholders equity	=	Rate of return on common stockholders Equity
(96,000	-	21,000)	/	292,000	=	25.68%

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