10.8 Evaluate return on shareholders' equity and return on common shareholders' equity
1) The formula for return on equity is net income divided by average shareholders' equity.
2) The denominator in calculating return on common equity is:
A) average common shareholders' equity.
B) average shareholders' equity.
C) net income.
D) total shareholders' equity.
E) net income available to common shareholders.
3) Return on common equity shows the relationship between __________ and __________.
4) According to the text, what percentage range is considered to be good returns?
5) What is the rate of return on shareholders' equity for the year ending 2012 if sales were $200,000, net income was $75,000, total shareholders' equity was $750,000, and total shareholders' equity for 2011 was $675,000 (round to one decimal place)?
6) What is the rate of return on common shareholders' equity if sales are $100,000, net income is $22,700, and average common shareholders' equity is $86,000?
7) Compute the rate of return on shareholders’ equity and the rate of return on common shareholders' equity given the following information:
Net Income
|
$290,000
|
Preferred Dividends
|
25,000
|
Common Shareholders’ Equity Jan.1, 2011
|
3,450,000
|
Common Shareholders’ Equity Dec. 31, 2011
|
3,600,000
|
Total Shareholders’ Equity Jan. 1, 2011
|
4,100,000
|
Total Shareholders’ Equity Dec. 31, 2011
|
4,250,000
|
Return on Shareholders’ Equity: __________% (to nearest one-tenth %)
Return on Common Shareholders’ Equity: __________% (to nearest one-tenth %)