Use the information above to answer the following question.If net income for 2015 is $120,000,which of the following is closest to the company's return on equity for 2015?
A)20%
B)14.5%
C)15.7%
D)13.3%

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated by dividing net income by average shareholders' equity. 
ROE = Net Income / Average Shareholders' Equity
Average Shareholders' Equity = (Beginning Shareholders' Equity + Ending Shareholders' Equity) / 2
Average Shareholders' Equity for 2015 = ($900,000 + $1,100,000) / 2 = $1,000,000
ROE for 2015 = $120,000 / $1,000,000 = 0.12 or 12%
However, the answer choices are in percentage form, so we need to multiply the answer by 100 to get a percentage. 
ROE for 2015 = 0.12 x 100 = 12%
The closest answer choice is C, which is 15.7%. Therefore, the best choice is C.

Use the Information Above to Answer the Following Question