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Which of the following companies has the highest return on common stockholders’ equity?
A : a company with a net income of $17 million, preferred dividends of $950,000, and average common stockholders’ equity of $90 million
B : a company with a net income of $22 million, preferred dividends of $0, and average common stockholders’ equity of $280 million
C : a company with a net income of $45 million, preferred dividends of $3 million, and average common stockholders’ equity of $547 million
D : a company with a net income of $31 million, preferred dividends of $830,000, and average common stockholders’ equity of $412 million

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Answer:

So Option A has the highest return on common stockholders equity which is 17.8%

Explanation:

First we will calculate the return on each each stockholder equity by using the   following formula:

Return=(Net Income-preferred dividends)/Average common stockholder equity

Part A:

[tex]Return=\frac{(17 million -950,000)}{90 million}[/tex]

Return=17.8%

Part B:

[tex]Return=\frac{(22 million -0)}{280 million}[/tex]

Return=7.9%

Part C:

[tex]Return=\frac{(45 million -3 million)}{547 million}[/tex]

Return=7.7%

Part D:

[tex]Return=\frac{(31 million -830000)}{412 million}[/tex]

Return=7.3%

So Option A has the highest return on common stockholders equity which is 17.8%

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