Question

Prince Company had a net income of $45,500 in a year when its stockholders equity averaged $450,000 and its total assets averaged $2,500,00. Calculate the company's return on equity for the period.

Answer 1

To calculate the return on equity (ROE) for Prince Company, we can use the following formula:

ROE = Net Income / Average Stockholders' Equity

First, we can calculate the average stockholders' equity by adding the beginning and ending stockholders' equity and dividing by 2:

Average Stockholders' Equity = ($450,000 + Ending Stockholders' Equity) / 2

We don't have the ending stockholders' equity, so we cannot calculate the exact ROE. However, we can estimate the ROE using the given data:

ROE = Net Income / Average Stockholders' Equity

ROE = $45,500 / ($450,000 + Ending Stockholders' Equity) / 2

ROE = $45,500 / ($450,000 + $2,500,000) / 2

ROE = $45,500 / $1,475,000

ROE = 0.0308 or 3.08%

Therefore, the estimated return on equity for Prince Company during the period is 3.08%. However, this is just an estimate as we do not have the exact ending stockholders' equity.