Question

The following information relates to Waterloo Components, Inc.:

Net income $55,000 $75,000
Preferred stock dividends 5,000 5,000
Average common stockholders equity 2,000,000 2,100,000
Dividend per common share 1.50 1.60
Earnings per share 2.90 2.95
Market price per common share, year-end 29.50 30.00
a. Calculate the company s return on common stockholders equity for 2012 and 2013.

Answer 1

The return on common stockholders' equity for Waterloo Components, Inc. was 2.5% for 2012 and 3.33% for 2013, calculated by subtracting preferred stock dividends from net income and then dividing by the average common stockholders' equity for each year.

Step-by-step explanation:

To calculate the return on common stockholders' equity for Waterloo Components, Inc. for the years 2012 and 2013, we would use the formula:

Return on Common Stockholders' Equity = (Net Income - Preferred Stock Dividends) / Average Common Stockholders' Equity

For 2012:

• Net Income: $55,000
• Preferred Stock Dividends: $5,000
• Average Common Stockholders' Equity: $2,000,000

Return on Common Stockholders' Equity for 2012 = ($55,000 - $5,000) / $2,000,000 = 0.025 or 2.5%

For 2013:

• Net Income: $75,000
• Preferred Stock Dividends: $5,000
• Average Common Stockholders' Equity: $2,100,000

Return on Common Stockholders' Equity for 2013 = ($75,000 - $5,000) / $2,100,000 = 0.0333 or 3.33%