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21 August, 01:28

On January 1, 2017, Vahsholtz Corporation purchased 5,000 shares of treasury stock. Other information regarding Vahsholtz Corporation is provided as follows. 2017 2016 Net income $110,000 $100,000 Dividends on preferred stock $30,000 $30,000 Dividends on common stock $25,000 $20,000 Weighted-average number of common shares outstanding 45,000 50,000 Common stockholders' equity beginning of year $750,000 $600,000 Common stockholders' equity end of year $830,000 $750,000 (a) Compute return on common stockholders' equity for each year. (Round answers to 1 decimal place, e. g. 15.2.) 2016 2017 Return on common stockholders' equity

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  1. 21 August, 01:55
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    2016 = 10.4%

    2017 = 10.1%

    Explanation:

    The formula to compute the return on common stockholders' equity is shown below:

    = (Net income - preference dividend) : (Average Common stockholders' equity)

    For 2017

    Net income is $110,000

    Preference dividend = $30,000

    And, the Average Common stockholders' equity would be

    = (Opening Common stockholders' equity + Ending Common stockholders' equity) : 2

    = ($750,000 + $830,000) : 2

    = $790,000

    Now put these values to the above formula

    So, the value would equal to

    = ($110,000 - $30,000) : ($790,000)

    = 10.1%

    For 2016

    Net income is $100,000

    Preference dividend = $30,000

    And, the Average Common stockholders' equity would be

    = (Opening Common stockholders' equity + Ending Common stockholders' equity) : 2

    = ($600,000 + $750,000) : 2

    = $675,000

    Now put these values to the above formula

    So, the value would equal to

    = ($100,000 - $30,000) : ($675,000)

    = 10.4%
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