A corporation reported net income of $250,000 and paid dividends of $10,000 on its common stock...

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A corporation reported net income of $250,000 and paid dividends of $10,000 on its common stock and $50,000 on its preferred

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Answer 1

Answer #1

The formula to calculate the Return on Common stockholders equity is as follows:-

Return on Common stockholders equity = (Net Income - Preferred Dividends)/Average Common stockholders equity

=($250,000 - $50,000)/[($1,200,000 + $1,600,0000)/2]

=$200,000/$1,400,000

=14.285%

Return on Common stockholders equity = 14.29%(Rounded)

Based on the above calculation, the correct answer is Option B - 14.29%.

Option A and Option C are incorrect based on the above calculation.

Option D is incorrect. This is arrived by reducing the preferred stock dividends and common stock dividends from the Net Income which is incorrect.

Option E is incorrect. This is arrived by reducing the common stock dividends from net income and not prefererred stock dividend which is incorrect.

Please let me know if you have any questions via comments and all the best :)

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Answer 2

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