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Settles Corporation has provided the following financial data:

Balance Sheet
December 31, Year 2 and Year 1
	Year 2	Year 1
Assets
Current assets:
Cash	$ 142,000	$ 110,000
Accounts receivable, net	104,000	120,000
Inventory	119,000	120,000
Prepaid expenses	37,000	40,000
Total current assets	402,000	390,000
Plant and equipment, net	717,000	720,000
Total assets	$ 1,119,000	$ 1,110,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 156,000	$ 180,000
Accrued liabilities	84,000	70,000
Notes payable, short term	66,000	60,000
Total current liabilities	306,000	310,000
Bonds payable	250,000	250,000
Total liabilities	556,000	560,000
Stockholders’ equity:
Common stock, $4 par value	240,000	240,000
Additional paid-in capital	90,000	90,000
Retained earnings	233,000	220,000
Total stockholders’ equity	563,000	550,000
Total liabilities & stockholders’ equity	$ 1,119,000	$ 1,110,000

Income Statement
For the Year Ended December 31, Year 2
Sales (all on account)	$ 1,360,000
Cost of goods sold	850,000
Gross margin	510,000
Operating expenses	462,692
Net operating income	47,308
Interest expense	19,000
Net income before taxes	28,308
Income taxes (35%)	9,908
Net income	$ 18,400

Dividends on common stock during Year 2 totaled $5,400. The market price of common stock at the end of Year 2 was $5.89 per share.

The company’s return on equity for Year 2 is closest to:

▸ 3.31%

▸ 8.50%

▸ 5.09%

▸ 50.52%

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