Question

Consider the following data for a corporation: Net income $800,000 Preferred stock dividends $50,000 Market price per share of stock $25 Average common stockholders’ equity $4,000,000 Cash dividends declared on common stock $20,000 What is the return on common stockholders’ equity? 20.00% 19.50% 21.25% 18.75%

Answer 1

18.75%

Step-by-step explanation:

The formula for calculating return on stockholder equity is,

Return = Net Income - Preferred stock dividend / Avg Stockholder equity

so,

Return = 800,000 - 50,000 / 4,000,000 = 0.1875 or 18.75%

Hope that helps