The Balance Sheets at the End of Each of the First

question 81

Multiple Choice

The balance sheets at the end of each of the first two years of operations indicate the following: $\begin{array}{lrr}&2017&2018\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 80,000\\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-common stock } & 60,000 & 60,000 \\\text { Retained earnings } & 325,000 & 210,000\end{array}$ ? Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, what is the return on common stockholders' equity for 2017 (round to one decimal place) ?

• A) 12.3%
• B) 17.4%
• C) 13.0%
• D) 14.0%

---

Definitions:

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

The change in consumption that results from a change in the relative price of goods, leading consumers to substitute away from higher-priced goods.

Income Effect

The income effect describes the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Normal Good

A type of good for which demand increases as the income of the consumer increases, holding all else constant.