Which of the following actions would likely increase the Return on Equity (ROE)?
A)An increase in the cost of goods sold
B)The purchase of treasury stock
C)Issuing shares of preferred stock
D)An increase in the income tax rate

Question

Quizplus · Accepted Answer

ROE = (Net Income − Preferred Dividends)÷ Average Stockholder's Equity)× 100
Purchasing treasury stock decreases stockholder's equity,which would cause ROE to increase.An increase in cost of goods sold or in the income tax rate would cause net income to decrease,which would cause ROE to decrease.The issuance of preferred stock would increases stockholder's equity,which would cause ROE to decrease.

Which of the Following Actions Would Likely Increase the Return