Question

Exercise 11-11 The following financial information is available for Pina Colada Corporation. (in millions) 2017 2016 Average common stockholders’ equity $2,645 $2,725 Dividends declared for common stockholders 395 650 Dividends declared for preferred stockholders 35 35 Net income 680 750 Calculate the payout ratio and return on common stockholders’ equity ratio for 2017 and 2016. (Round answers to 1 decimal place, e.g. 12.5%) 2017 2016 Payout ratio enter payout ratio in percentages % enter payout ratio in percentages % Return on common stockholders’ equity enter return on common stockholders’ equity ratio in percentages % enter return on common stockholders’ equity ratio in percentages % Click if you would like to Show Work for this question: Open Show Work

Answer 1

For 2016

Payout ratio = (Dividends declared for common stockholders+ Dividends declared for preferred stockholders)/Net income

= (650+35)/750

= 91.3%

Return on common stockholders’ equity = (Net income -Dividends declared for preferred stockholders)/Average common stockholders’ equity

= (750-35)/2,725

= 26.2%

For 2017

Payout ratio = (Dividends declared for common stockholders+ Dividends declared for preferred stockholders)/Net income

= (395+35)/680

= 63.2%

Return on common stockholders’ equity = (Net income -Dividends declared for preferred stockholders)/Average common stockholders’ equity

= (680-35)/2,645

= 24.4%

		2017			2016
Payout ratio		enter payout ratio in percentages	63.2%		enter payout ratio in percentages	91.3%
Return on common stockholders’ equity		enter return on common stockholders’ equity ratio in percentages	24.4%		enter return on common stockholders’ equity ratio in percentages	26.2%

Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.

Thanks