Window Help Show Me How The following selected data were taken from the financia

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Window Help Show Me How The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017 20Y6, and 20Ys 20Y7 20Y6 20YS Total assets Notes payable (8% interest) Common stock Preferred 3% stock, $100 par $170,000 60,000 24,000 12,000 153,000 60,000 24,000 12,000 $136,000 0,000 24,000 2,000 (no change during year) Retained earnings The 20Y7 net income was $21,455, and the 20Y6 net income was $8,450. No dividends on common stock were declared between 20YS and 65,185 44,090 ).dividends were declared and paid in full in 20Y6 and 207 a. Determine the return on total assets, the rate eamed on stockholders equity, and the retum on common stockholders equity for the years 20m When required, round to one decimal place. 20Y7 20Y6 Return on total assets Return on stockholders equity Return on common stockholders' equity b. The profitability ratios indicate that stockholders' equity in both years, there must be positive leverage from the use of debt. the retur Vidahill Inc.'s profitability has improved Since the rate of retun on assets is less than 0

Explanation / Answer

Return on Total Assets = EBIT / Net Total Assets

2016

EBIT= Net Income + Interest + Tax = 8,450 + 4,800 (interest 60,000 x8%) = $13,250

ROA = $13,250 / 1,70,000 = 7.79%

2017

EBIT= Net Income + Interest + Tax = 21,455 + 4,800 = $26,255

ROA 2016 = $26,255 / $153,000 = 17.16%

Return on stockholder's equity = Net Income / Shareholder's equity

2016 Shareholder's equity = Common stock + Preffered stock + Retained Earnings = 24,000+ 12,000 + 44,090= 80,090

ROE = 8,450 / 80,090 = 10.55%

2017 Shareholder's equity = Common stock + Preffered stock + Retained Earnings = 24,000+ 12,000 + 65,185 =101,185

= 21,455 / 101,185 = 21.2%

Return on common stockholder equity = Net Income - Preffered Dividend / Average common stockholder equity

2016

Net income available for common stockholders:
=$8450 – $4,000
=$4450

**Average common stockholders’ equity:
=[($$80,090) + 72,000/ 2] – [($12,000 + $12,0000) / 2]
=$76,045 – $12,000
=$64,045

Return on common stockholder equity =$4,450 / $64,045 =6.948% ROUND OFF TO 7%

2017

Net income available for common stockholders:
=$21,455 – $4,000
=$17,455

**Average common stockholders’ equity:
=[($101,185 +$80,090) / 2] – [($12,000 + $12,0000) / 2]
=$90,637 – $12,000
=$78,637

Return on common stockholder equity =$17,455 / $78,637 = 22.2%

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