Question

On December​ 31, Mercury Corporation has the following data​available:

Net Income ​$180,000
Interest expense ​10,000
Total assets at the beginning of the year ​810,000
Total assets at the end of the year ​740,000
Total common​ stockholders' equity at the beginning of the year ​520,000
Total common​ stockholders' equity at the end of the year ​510,000

What is return on​ equity? (Round your final answer to two decimal​ places, X.XX%)

Answer 1

The return on equity will be 34.95%

Step-by-step explanation:

According to the given data, in order to calculate the return on​ equity, we would have to use the following formula

RETURN ON EQUITY = NET INCOME OR EARNINGS AVAILABLE FOR EQUITY SHAREHOLDERS / SHAREHOLDER'S AVERAGE EQUITY

SHAREHOLDER'S AVERAGE EQUITY =( OPENING COMMON STOCK + CLOSING COMMON STOCK ) / 2

AVERAGE EQUITY = ( $520,000 + $510,000 ) / 2 = $515,000

NET INCOME = $ 180,000

THEREFORE, RETURN ON EQUITY = $180,000 / $515,000

= 34.95%

The return on equity will be 34.95%