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The income statement for NJ Simpson Inc. reports the following, a. Compute return on equity for 2019 and 2018 , under the following assumptions. -
The income statement for NJ Simpson Inc. reports the following, a. Compute return on equity for 2019 and 2018 , under the following assumptions. - Traditional definition of equity. - With adding back treasury stock to equity. - Using market value of equity instead of boak value. Round answers to one decimal place (ex: 0.2345=23.5% ) b. Which of these metrics do we believe best measures the company's return for the past two years? Select which statement is correct. OTraditional ROE is inflated by the small equity balance in the denominator. This version does not truly measure the company's performance. OROE with no treasury stock is inflated by the small equity balance in the demoniator as it assumes the company could sell the treasury stock and add the cash to assets. OROE using market value potentially overstates current period performance because the ratio includes the company's high stock price, which by definition impounds future earnings. OAll of these statements are correct
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