Question

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 20Y7 20Y6 20Y5 Total assets $201,000 $181,000 $161,000 Notes payable (8% interest) 70,000 70,000 70,000 Common stock 28,000 28,000 28,000 Preferred 6% stock, $100 par 14,000 14,000 14,000 (no change during year) Retained earnings 81,020 56,390 42,000 The 20Y7 net income was $25,470, and the 20Y6 net income was $15,230. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders’ equityfor the years 20Y6 and 20Y7. When required, round to one decimal place.

Answer 1

Return on Net Assets =    Net Income/ Total Assets*100
		20Y6	20Y7
Net Assets		$201,000	$181,000
Net Income		$25,470	$15,239
Return on net assets		25470/201000*100	15239/181000*100
	=	13%	8%
Return on Stockhokder,s Equity = ( Net Income- Preffered Dividend)
		Avg Stockholder Equity
Net Income		$25,470	$15,239
Preffered Dividend		$840	$840
( 14000*6%)
		$24,630	$14,399
Common Stock holder		28000	28000
Return on Stockholder equity		$0.88	$0.51