Assuming that Lisa, Inc.’s net income for Year 2 was $35,000, and there were no preferred stock dividends in arrears, Lisa’s return on common equity for Year 2 was A. 7.8% B. 10.6% C. 10.9% D. 12.4%
Answer (A) is correct . Return on common equity (ROCE) equals income available to common shareholders divided by average common equity. Lisa’s preferred stock dividend。 The net income available for common equity is 35-5=30 .
This is because $5,000 of the $35,000 of income needs to be reserved for the cumulative preferred dividend.The average common equity is (390-100+375-100)/2=282.5 30/282.5=10.6%
Assuming that Lisa, Inc.’s net income for Year 2 was $35,000, and there were no preferred stock dividends in arrears, Lisa’s return on common equity for Year 2 was
