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Tina-50969 - 04/18/2020, 4:08 pm

How did you get 34.5?

I got 32% =800000-300000=500000 total outstanding
200000-40000=160000/500000=32%

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Monica-35689 - 05/3/2020, 8:48 am

The company started with 800,000. They had 300,000 in liabilities. 800,000-300,000= 500,000. They reported 200,000 that quarter. 500,000+200,000=700,000. They paid 40,000 in dividends. 700,000-40,000= 660,000 shareholder profits. In order to calculate return on equity you need average share holder's profits. To get the average you add the beginning shareholder profit to the ending shareholder profit and divide. 500,000 + 660,000= 1,160,000. 1,160,000/2 to get the average= 580,000. The calculate the return on equity. The assets for the quarter was 200,000. The average shareholder's profits was 580,000. 200,000/580,000= 34.5 rounded.

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Tina-50969 - 05/4/2020, 10:21 pm

Thank you so much Monica for the reply. I got why it was divided by 2.

Varun-62811 - 05/14/2020, 1:11 pm

Well explained, Monica-35689.

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