Please refer to Table 4-2 for the following questions. Table 4-2

Drummond Company

Balance Sheet

Assets:
Cash and marketable securities		$400,000
Accounts receivable		1,415,000
Inventories		1,847,500
Prepaid expenses		24,000
Total current assets		3,686,500
Fixed assets	2,800,000
Less: accum. depr.	(1,087,500)
Net fixed assets		1,712,500
Total assets		$5,399,000
Liabilities:
Accounts payable		$600,000
Notes payable	875,000

Accrued taxes

92,000

Total current liabilities		$1,567,000
Long-term debt		900,000
Common Stock (100,000 shares)		700,000
Retained Earnings		2,232,000
Total liabilities and owner's equity		$5,399,000
Net sales (all credit)		$6,375,000
Less: Cost of goods sold		(4,375,000)
Selling and administrative expense		(1,000,000)
Depreciation expense		(135,000)
Interest expense		(100,000)
Earnings before taxes		$765,000
Income taxes		(306,000)
Net income		$459,000

Based on the information in Table 4-2, the return on equity is

• A. 18.47%.
• B. 15.65%.
• C. 19.33%.
• D. 16.66%.