Porter Industries Inc. began 2018 with total stockholders’ equity of $40 million. Due to a large...

Porter Industries Inc. began 2018 with total stockholders’ equity of $40 million. Due to a large acquisition of treasury stock and the payment of a $10 million cash dividend, the company ended that year with stockholders’ equity of only $5 million. For the year ended December 31, 2018, Porter reported net income of $10 million. What is the company's return on equity?

10%
2.25%
44.4%
Not enough information to determine

Expert Solution

The correct answer is 44.44 %

Calculation

Return on equity

= net income / average stockholders equity*100

= (10 / ((40+5)/2))*100

= (10/22.5)*100

= 44.44 %

Thus the correct answer return on equity = 44.44 %

ekkarill92 answered 2 years ago

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