Stocks (Common Stock and Preferred Stock): These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions. 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: Re t u r n o n E q u i t y = N e t I n c o m e A v e r a g e S t o c k h o l d e r ’ s E q u i t y The Average stock holder’s equity calculated with the help of following formula: A v e r a g e s t o c k h o l d e r ’ s e q u i t y = ( B e g i n n i n g s t o c k h o l d e r ’ s e q u i t y + E n d i n g s t o c k h o l d e r ’ s e q u i t y ) 2 To calculate: The Return on Equity before and after the acquisition for both financing alternatives.
Stocks (Common Stock and Preferred Stock): These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions. 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: Re t u r n o n E q u i t y = N e t I n c o m e A v e r a g e S t o c k h o l d e r ’ s E q u i t y The Average stock holder’s equity calculated with the help of following formula: A v e r a g e s t o c k h o l d e r ’ s e q u i t y = ( B e g i n n i n g s t o c k h o l d e r ’ s e q u i t y + E n d i n g s t o c k h o l d e r ’ s e q u i t y ) 2 To calculate: The Return on Equity before and after the acquisition for both financing alternatives.
Solution Summary: The author explains that Common Stock and Preferred Stock are two types of the share capital of a company. Return on Equity is the rate of return earned by the Stockholders on their investment in the company
Definition Definition Assets available to stockholders after a company's liabilities are paid off. Stockholders’ equity is also sometimes referred to as owner's equity. A stockholders’ equity or book value generally includes common stock, preferred stock, and retained earnings and is an indicator of a company's financial strength.
Chapter 10, Problem 92.1C
To determine
Concept introduction:
Stocks (Common Stock and Preferred Stock):
These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions.
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:
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