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The net income of a company for the year was $500,000. The company has no preferred stock. Common stockholders' equity was $1,200,000 at the beginning of the year and $2,500,000 at the end of the year. Calculate the rate of return on common stockholders' equity.

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Tundexi

Answer:

27.03%

Explanation:

Average common stockholders' equity = (1,200,000+2,500,000) / 2

Average common stockholders' equity = $3,700,000 / 2

Average common stockholders' equity = $1,850,000

Rate of return on common stockholders' equity = Net Income / Average common stockholders' equity

Rate of return on common stockholders' equity = $500,000 / $1,850,000

Rate of return on common stockholders' equity = 0.27027

Rate of return on common stockholders' equity = 27.03%

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