Question

Y3K, Inc., has sales of $6,349, total assets of $2,965, and a debt-equity ratio of 1.20. If its return on equity is 15 percent, what is its net income

Answer 1

$202.16

Step-by-step explanation:

Calculation to determine net income

First step

ROE = .15 = (Profit margin)(Total asset turnover)(Equity multiplier) = (PM)(S / TA)(1 + D/E)

Profit margin = [(ROE)(TA)] / [(1 + D/E)(S)]

Profit margin = [(.15)($2,965)] / [(1 + 1.20)( $6,349)]

Profit margin =444.75/13968

Profit margin = .03184

Now let determine the Net income

Profit margin = .03184 = Net income / Sales

Net income = .03184($6,349)

Net income = $202.16

Therefore the net income is $202.16