Reference no: EM131717403

Question - Kojak Corporation decided to issue common stock and used the $300,000 proceeds to redeem all of its outstanding bonds on January 1, 2017. The following information is available for the company for 2017 and 2016.

	2017	2016
Net income	$ 182,000	$ 150,000
Dividends declared for preferred stockholders	8,000	8,000
Average common stockholders' equity	1,000,000	700,000
Total assets	1,200,000	1,200,000
Current liabilities	100,000	100,000
Total liabilities	200,000	500,000

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.