Question

North Company reports the following amounts for 2015:

Net income
$ 160,000
Average stockholders' equity
2,000,000
Preferred dividends
45,000
Par value preferred stock
250,000

The 2015 rate of return on common stockholders' equity is:
A) 5.8%.
B) 6.6%.
C) 8.0%.
D) 9.1%.

Answer 1

The 2015 rate of return on common stockholders' equity for North Company is 8.0%. The correct answer is option C.

Step-by-step explanation:

The rate of return on common stockholders' equity can be calculated using the formula:

Rate of Return on Common Stockholders' Equity = Net Income / Average Stockholders' Equity

In this case, the net income is $160,000 and the average stockholders' equity is $2,000,000.

Rate of Return on Common Stockholders' Equity = $160,000 / $2,000,000 = 0.08 = 8%

Therefore, the 2015 rate of return on common stockholders' equity for North Company is 8.0% (option C).