Mann Corporation decided to issue common stock and used the $120,000 proceeds to retire all of its outstanding bonds on January 1, 2014. The following information is available for the company for 2013 and 2014. Instructions
(a) Compute the return on common stockholders' equity for both years.
(b) Explain how it is possible that net income increased, but the return on common stockholders' equity decreased.
(c) Compute the debt to assets ratio for both years, and comment on the implications of this change in the company's solvency.

Question

Mann Corporation decided to issue common stock and used the $120,000 proceeds to retire all of its outstanding bonds on January 1, 2014. The following information is available for the company for 2013 and 2014.  Instructions
(a) Compute the return on common stockholders' equity for both years.
(b) Explain how it is possible that net income increased, but the return on common stockholders' equity decreased.
(c) Compute the debt to assets ratio for both years, and comment on the implications of this change in the company's solvency.

Quizplus · Accepted Answer

The Answer of Mann Corporation decided to issue common stock and used the $120,000 proceeds to retire all of its outstanding bonds on January 1, 2014. The following information is available for the company for 2013 and 2014.  Instructions
(a) Compute the return on common stockholders' equity for both years.
(b) Explain how it is possible that net income increased, but the return on common stockholders' equity decreased.
(c) Compute the debt to assets ratio for both years, and comment on the implications of this change in the company's solvency.

Mann Corporation Decided to Issue Common Stock and Used the $120,000