Chapter 10, Problem 55BE

To determine

Concept introduction:

Return on Equity:

Return on Equity is the rate of return earned by the Stockholders on their investment in the company. It is calculated with the help of following formula:

$\mathrm{Re}turnonEquity=\frac{NetIncome}{AverageStockholder’sEquity}$

The Average stock holder’s equity calculated with the help of following formula:

$Averagestockholder’sequity=\frac{( Beginningstockholder’sequity+Endingstockholder’sequity)}{2}$

Basic Earnings per share:

The Basic Earnings per share is the amount of net income earned by each common share outstanding. The Earnings per share calculated by with help of following formula:

$\text{Basic Earnings per share=}\frac{\text{Net Income - Preferred Dividend}}{\text{Weighted Average Common Shares Outstanding}}$

$\begin{array}{l} \hfill \\ NetIncomeavailabletocommonstockholder=Netincome–PreferredDividend\hfill \end{array}$

To calculate:

The Return on Equity and Earnings per share.