Question

In its first year, Raydine Inc. reported sales revenue of $1,300,000, net income of $200,000, and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders' equity was $1,200,000 at the start of the year and $1,800,000 at the end of the year. How much is the company's return on common stockholders' equity in its first year?

Answer 1

Return on common stockholders' equity=0.0933=9.33 %

Step-by-step explanation:

Net Income=$200,000

Preferred Stockholder Dividends=Number of shares* value per share*interest

Preferred Stockholder Dividends=10000*$100*6%

Preferred Stockholder Dividends=10000*$100*0.06

Preferred Stockholder Dividends=$60,000

Average Common stockholders' equity= (Equity at start of year+Equity at end of year)/2

Average Common stockholders' equity=
`(\$ 1,200,000+\$1,800,000 )/(2)`

Average Common stockholders' equity=$1,500,000

Return on common stockholders' equity=(Net Income-Preferred Stockholder Dividends)/Average Common stockholders' equity

Return on common stockholders' equity=
`(\$200,000-\$60,000)/(\$1,500,000)`

Return on common stockholders' equity=0.0933=9.33 %