Question

Smith Company the following information on the financial statements:Net Income$50,000Preferred Dividends8,000Average Common Stockholder's Equity180,000Average number of Common Shares Outstanding250,000sharesMarket Price$2per shareWhat is the rate of return on common stockholder's equity (to nearest percent)?

Answer 1

28%

Step-by-step explanation:

Now to find rate of return we just divide net income by average common stockholder's equity:

rate of return = ($50,000 / $180,000) x 100 = 27.78%

Since we are told to round to nearest percent, we must round up to 28%