Rafters, Inc. has year-end retained earnings of $250,000, 100,000 cumulative preferred shares each with a dividend of $.80 each and $1,000,000 common shares. If Rafters Inc. achieved a net income after tax of $330,000 for the period, what is the company's return on equity?

Question

Quizplus · Accepted Answer

Return on equity = Net income after tax / (Beginning retained earnings + (Preferred shares * Preferred dividend) + (Common shares * Common dividend))= 330,000 / (250,000 + (100,000 * 0.80) + (1,000,000 * 0))= 330,000 / 1,250,000= 26.4%