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The following data are provided for Croatia Corp.'s last two fiscal years: Additional information:
On May 1, 2018, 6,000 common shares were issued.Although dividends had been declared regularly up to December 31, 2017, preferred dividends were NOT declared during 2018.The market price of the common shares was $100 at December 31, 2018.
-To the nearest percent, the rate of return on common shareholders' equity for 2018 is

Question

Use the following information for questions.
The following data are provided for Croatia Corp.'s last two fiscal years:  Additional information:
On May 1, 2018, 6,000 common shares were issued.Although dividends had been declared regularly up to December 31, 2017, preferred dividends were NOT declared during 2018.The market price of the common shares was $100 at December 31, 2018.
-To the nearest percent, the rate of return on common shareholders' equity for 2018 is

Quizplus · Accepted Answer

The formula for rate of return on common shareholders' equity is (Net Income - Preferred Dividends) / Average Common Shareholders' Equity.

Using the information given in the table and additional information provided, we can calculate the rate of return on common shareholders' equity for 2018 as follows:

Net Income = $276,000
Preferred Dividends = $0
Average Common Shareholders' Equity = [($732,000 + $412,000) / 2] + $6,000 = $575,000

Rate of return on common shareholders' equity = ($276,000 - $0) / $575,000 ≈ 0.48 or 48%

Rounding to the nearest percent, the rate of return on common shareholders' equity for 2018 is 20%. Therefore, the best choice is C.

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