Return on Common Equity Question question, assets, cannot, figure

franzino

Guys/Gals..

I got stumped on this question, I know the formula but I cannot figure out how to pull the inputs from the data given. Any help would be great.

Company Balance Sheet
As of December 31, 20XX

Year 1 -- Year 2

Cash: $2,000 -- $2,200
Account Receivables: $3,000 -- $3,500
Inventory: $4,000 -- $4,200
Total Current Assets: $9,000 -- $9,900

Fixed assets at cost: $22,000-- $24,300
accumulated depreciation: $9,000 -- $10,500
Net Fixed Assets: $13,000 -- $13,800

Total Assets: $22,000 -- $23,700

Q: Return on common equity for year 2 was closest to:

a. 62 %
b. 51 %
c. 43 %


Answer is b. 51% they show the formula as Net Income - Preferred Div. / Avg. Common Equity. For the formula they have $1860 - 0/ ($3000 + 4,296)/2 = 51%

I went back through the FRA book to find how to solve I couldn't find it any where. Please help me on how to get to the answer. Thanks.