The company\'s return on equity is approximately 13.44%. The following informati

Question

The company's return on equity is approximately 13.44%.

The following information was extracted from the accounting records of Company A: Net income $330,000 Interest expense $220,000 Total assets on 1.1.x1 $8,220,000 Total assets on 12.31.x1 $8,430,000 Total common equity on 1.1.x1 $2,800,000 Total common equity on 12.31.x1 $3,000,000 Preferred dividends $60,000 Which of the following statements is correct assuming an industry standard return on equity of 8%? (For this problem, round the answer to two decimal places.)

Explanation / Answer

1)return on asset:Net income / average total asset

average total asset: 8220000+8430000/2=8325000

=330000/8325000=3.96%

2)return on equity: net income/ average total equity

=330000/2900000=11.37%

1. is incorrect as retorn on $1 is approx .11

2. return on asset is 3.96 nor 9.31

So 2nd statement is correct

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