Sheffield Company had $42 000 of net profit in 2013. Equity at the beginning of the year was $1 200 000 and at the end of the year was $1 600 000. Sheffield has no preference shares. Please calculate the rate of return on ordinary shareholders' equity. (Please round to three decimal places.)
A)0.026
B)0.032
C)0.035
D)0.030

Question

Quizplus · Accepted Answer

The rate of return on ordinary shareholders' equity is calculated as Net Profit divided by Average Equity. Average Equity = ($1,200,000 + $1,600,000) / 2 = $1,400,000. Rate of Return = $42,000 / $1,400,000 = 0.030 or 3.0%.

Sheffield Company Had $42 000 of Net Profit in 2013