302892

Question 1

The following information is available for the Market Company:

Net income $ 10
Dividends 2
Earnings retained 8
Equity book value 90
Market value of earnings retained 8
Share price 2
Number of shares 100
Calculate the return on stockholders’ investment.

8.9%

5.0%

4.0%

11.1%

Answer 1

The return on stockholders’ investment is 5.0%, calculated as follows:

    Dividends + Market value of earnings retained  ROSI = ---------------------------------------------
          Number of shares x Share price
 
      $2 + $8      $10
  =  --------- = ------- 
     100 x $2     $200
 
 =   5.0%

Question 2

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