Question

Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income?

a)$83,013.69
b)$81,311.29
c)$80,485.65
d)$82,147.09
e)$78,887.02

Answer 1

The net income for Sunshine Rentals is calculated by first determining total assets using the debt-equity ratio and total equity, and then applying the return on assets percentage. The calculated net income is $80,485.65.

Step-by-step explanation:

The student is asking how to calculate the net income for Sunshine Rentals given its debt-equity ratio, return on assets (ROA), and total equity. The debt-equity ratio is the proportion of debt to equity, which in this case is 0.67. The return on assets is the income generated for every dollar of assets and is reported as a percentage, which is given as 8.1%. Total equity is the value of the owner's interest in the business, which is stated as $595,000.

To calculate the net income, we can use the following steps:

1. First, determine the total assets using the debt-equity ratio and the known total equity:
   

   Total Assets = Equity + Debt
   
   Debt = Equity × Debt-Equity Ratio
   
   Debt = $595,000 × 0.67 = $398,650
   
   Total Assets = $595,000 + $398,650 = $993,650

2. Next, calculate the net income using the return on assets (ROA):
   

   Net Income = Total Assets × ROA
   
   Net Income = $993,650 × 8.1% = $80,485.65

The net income for Sunshine Rentals is $80,485.65. Therefore, the correct answer is c) $80,485.65.