The Following Information Pertains to Ortiz Company What Is the Return on Common Stockholders' Equity for Ortiz

question 167

Multiple Choice

The following information pertains to Ortiz Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. $\begin{array}{lr}\text { Assets }\\\text { Cash and short-term investments } & \$ 45,000 \\\text { Accounts receivable (net) } & 25,000 \\\text { Inventory } & 20,000 \\\text { Property, plant and equipment } & 270,000 \\\quad \text { Total Assets } & \$ 360,000\end{array}$

$\begin{array}{lr}\text { Liabilities and Stockholders' Equity }\\\text { Current liabilities } & \$ 50,000 \\\text { Long-term liabilities } & 90,000 \\\text { Stockholders' equity—common } & 220,000 \\\quad \text { Total Liabilities and Stockholders' Equity } & \$ 360,000\end{array}$ $\begin{array}{lr}\text { Income Statement }\\\text { Sales } & \$ 150,000 \\\text { Cost of goods sold } & 66,000 \\\text { Gross profit } & 84,000 \\\text { Operating expenses } & 29,000 \\\quad \text { Net income } & 55,000 \\\\\text { Number of shares of common stock } & 6,000 \\\text { Market price of common stock } & \$ 20 \\\text { Dividends per share } & 50\end{array}$ What is the return on common stockholders' equity for Ortiz?

• A) 25%
• B) 50%
• C) 12.5%
• D) 15.3%

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Definitions:

Marginal Social Benefit

The incremental advantage to the community from the consumption or production of an additional unit of a product or service.

Pollution

is the introduction of contaminants into the natural environment that cause adverse changes, affecting air, water, and land quality detrimentally.

Positive Externality

A benefit that affects a party who did not choose to incur that benefit.

Externalities

Economic side effects or consequences of industrial or commercial activity that affect other parties without being reflected in the costs of the goods or services involved.