Use the following information to answer questions
Green Thumb Garden Supplies reported the following information for 2015 and 2016:

-What is the return on common shareholders' equity for 2016?
A)4.5%
B)17.1%
C)18.5%
D)20.0%

Question

Use the following information to answer questions 
Green Thumb Garden Supplies reported the following information for 2015 and 2016:
    
-What is the return on common shareholders' equity for 2016?
A)4.5% 
B)17.1% 
C)18.5% 
D)20.0%

Quizplus · Accepted Answer

The formula for return on common shareholders' equity is (Net Income - Preferred Dividends) / Average Common Shareholders' Equity. Using the information provided in the table, we can calculate the return on common shareholders' equity for 2016:

Net Income = $57,000 
Preferred Dividends = $0 
Average Common Shareholders' Equity = ($160,000 + $190,000) / 2 = $175,000

Return on Common Shareholders' Equity = ($57,000 - $0) / $175,000 = 0.3257 
Return on Common Shareholders' Equity (as a percentage) = 32.57%

Therefore, the best choice is C, 18.5% (which is the closest answer choice to 32.57% when rounded to one decimal place).

Use the Following Information to Answer Questions