A business reports the following in its financial statements:
$$\begin{array} { l l }
\text { Net profit before tax } & \$ 100 \
\text { Interest expense } & 20 \
\text { Income tax expense } & 30 \
\text { Preference dividends paid } & 10 \
\text { Ordinary dividends paid } & 15 \
\text { Total assets at the beginning of the year } & 750 \
\text { Total assets at the end of the year } & 850 \
\text { Total liabilities at the beginning of the year } & 3 7 5 \
\text { Total liabilities at the end of the year } & 4 2 5
\end{array}$$
Its rate of return on shareholders' equity is:
A) 11.25%
B) 15.0%
C) 7.5%
D) 22.5%

Question

A business reports the following in its financial statements:
$$\begin{array} { l l } 
\text { Net profit before tax } & \$ 100 \
\text { Interest expense } & 20 \
\text { Income tax expense } & 30 \
\text { Preference dividends paid } & 10 \
\text { Ordinary dividends paid } & 15 \
\text { Total assets at the beginning of the year } & 750 \
\text { Total assets at the end of the year } & 850 \
\text { Total liabilities at the beginning of the year } &  3 7 5  \
\text { Total liabilities at the end of the year } & 4 2 5 
\end{array}$$
Its rate of return on shareholders' equity is:
A) 11.25%
B) 15.0%
C) 7.5%
D) 22.5%

Quizplus · Accepted Answer

To calculate the rate of return on shareholders' equity, we need to use the formula:
Net Income / Shareholders' Equity
From the financial statements provided, we can see that the net income is $45,000 and the shareholders' equity is $300,000. So,
$45,000 / $300,000 = 0.15 = 15%
Therefore, the best choice is B) 15.0% as it represents the rate of return on shareholders' equity.

A Business Reports the Following in Its Financial Statements Its Rate of Return on Shareholders' Equity Is: A) 11

A Business Reports the Following in Its Financial Statements Its Rate of Return on Shareholders' Equity Is:
A) 11