Mann Corporation Decided to Issue Common Stock and Used the $120,000

question 26

Essay

Mann Corporation decided to issue common stock and used the $120,000 proceeds to retire all of its outstanding bonds on January 1, 2014. The following information is available for the company for 2013 and 2014. $\begin{array}{lrr}&2014&\$ 1013\\\text { Net income } & 20,000 & \$ 100,000 \\\text { Average stockholders' equity } & 1,000,000 & 800,000 \\\text { Total assets } & 1,200,000 & 1,200,000 \\\text { Current liabilities } & 100,000 & 100,000 \\\text { Total liabilities } & 360,000 & 480,000\end{array}$ Instructions
(a) Compute the return on common stockholders' equity for both years.
(b) Explain how it is possible that net income increased, but the return on common stockholders' equity decreased.
(c) Compute the debt to assets ratio for both years, and comment on the implications of this change in the company's solvency.

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Definitions:

Continuous Data

Data that can take any value within a given range or interval and can be measured with arbitrary precision.

Metrics

Quantifiable measures used to track and assess the status of a specific business process or activity.

Discrete

Discrete refers to a type of data or variable that can take on a finite number of values and is countable, such as the number of students in a class.

Ratio

A quantitative relationship between two numbers showing how many times one value contains or is contained within the other.