Question

DTO, Inc., has sales of $15 million, total assets of $12.6 million, and total debt of $5.6 million. Assume the profit margin is 8 percent. a. What is the company's net income? (Do not round intermediate calculations. Enter your answer in dollars not in millions, e.g., 1,234,567.) b. What is the company's ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a. Net income = $1,200,000

b. ROA = 9.52%

c. ROE = 17.14%

Step-by-step explanation:

a. Since in the given question, the profit margin is 8 percent.

So, the net income = Sales × Profit margin

= $15,000,000 × 8%

= $1,200,000

Hence, the net income is $1,200,000

b. The formula for Return on Assets (ROA) is shown below:

= Net income ÷ Total Assets

= $1,200,000 ÷ $12,600,000

= 9.52%

Thus, the Company ROA is 9.52%

c. The formula for Return on Equity (ROE) is displayed below:

= Net income ÷ Total Equity

Since the total assets and total debt is given so we can calculate the total equity by applying accounting equation which is equals to

Total assets = Total liabilities + Total equity

$12,600,000 = $5,600,000 + Total Equity

$12,600,000 - $5,600,000 = Total Equity

Total Equity is $7,000,000

So, the total equity is $7,000,000.

Now, the ROE is

= Net income ÷ Total Equity

= $1,200,000 ÷ $7,000,000

= $17.14 %

Thus, the total equity is $17.14 %