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Wildhorse Co. had net income of $175240 and paid dividends of $40000 to common stockholders and...

Wildhorse Co. had net income of $175240 and paid dividends of $40000 to common stockholders and $19000 to preferred stockholders in 2020. Wildhorse Co.’s common stockholders’ equity at the beginning and end of 2020 was $862000 and $1370000, respectively. Wildhorse Co.’s return on common stockholders’ equity was

11.00%.

14.00%.

10.00%.

16.00%.

Solutions

Expert Solution

Correct Option B i.e. 14%
Return on Equity = Net Income to common stockholder/ Average Equity
                                    = 156240 / 1116000
14.00%
Net Income to common stockholder
Net Income          175,240
Less: Dividend to preference stockholder          (19,000)
Net Income to common stockholder          156,240
Average Equity =( Beginning Equity + Ending Equity )/2
     =(862000 + 1370000)/2
                                                        1,116,000

ekkarill92 answered 3 years ago
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