What is the rate of return on common stockholders' equity if net income before taxes is $21,200,sales are $200,000,and common stockholders' equity is $76,000?
A)22.7%
B)26.4%
C)27.9%
D)None of these answers is correct.

Question

Quizplus · Accepted Answer

The formula for rate of return on common stockholders' equity is net income divided by common stockholders' equity. First, we need to calculate the net income after taxes. Assuming a tax rate of 30%, net income would be $14,840 ($21,200 - 30%*$21,200). Then, dividing net income by common stockholders' equity yields a rate of return of approximately 27.9%, or choice C.

What Is the Rate of Return on Common Stockholders' Equity