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15 May, 12:10

Rugged Sports Enterprises LP is organized as a limited partnership consisting of two individual partners: Hockey LP and Football LP. Hockey LP Football LP Total Beginning-year balance $ 345,000 $ 1,414,500 $ 1,759,500 Annual net income 36,664 751,612 788,276 Cash distribution - (120,000) (120,000) Ending-year balance $ 381,664 $ 2,046,112 $ 2,427,776 Compute partner return on equity for each limited partnership (and the total) for the year using the above data from Rugged Sports Enterprises LP.

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  1. 15 May, 12:23
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    Find the answers in the explanation section below

    Explanation:

    The return on equity for each of the partners and the firm in total is the net income for the year divided by average capital invested in the business in the year.

    Average capital or equity is the beginning balance plus ending balance divided by 2:

    Hockey LP:

    Annual net income is $36,664

    average equity = ($345,000+$381,664) / 2=$363,332

    return on equity = $36,664/$363,332 = 10.09%

    Football LP:

    Annual net income is $751,612

    average equity = ($1,414,500 + $2,046,112) / 2=$1,730,306

    return on equity=$751,612/$1,730,306 = 43.44%

    Rugged sports:

    Annual net income is $788,276

    average equity = ($1,759,500 + $2,427,776) / 2=$2093638

    return on equity=$788276/$2093638 = 37.65%
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