Crabtree Company's net income last year was $50,000.The company paid dividends on preferred shares of $20,000,and its average common shareholders' equity was $440,000.The company's return on common shareholders' equity for the year was closest to which of the following?
A) 4.5%.
B) 6.8%.
C) 11.4%.
D) 15.9%.

Question

Quizplus · Accepted Answer

The return on common shareholders' equity (ROE) is calculated by taking the net income available to common shareholders (net income minus preferred dividends) and dividing it by the average common shareholders' equity. In this case, it's ($50,000 - $20,000) / $440,000 = $30,000 / $440,000 = 0.068, or 6.8%.

Crabtree Company's Net Income Last Year Was $50,000