Question

Y3K, Inc., has sales of $7,475, total assets of $3,525, and a debt−equity ratio of .34. Assume the return on equity is 20 percent. What is its net income?

Answer 1

To calculate the net income, you need to subtract the total expenses from the sales. Use the given information to calculate the total debt and then substitute it into the net income formula.

Step-by-step explanation:

The net income of Y3K, Inc. can be calculated using the formula:

Net Income = Sales - Total Expenses

Given that the return on equity is 20 percent, we can calculate the equity as:

Equity = Total Assets - Total Debt

Now, using the debt-equity ratio, we can calculate the total debt as:

Total Debt = Debt-Equity Ratio * Equity

Substituting the values given:

Total Debt = 0.34 * ($3,525)

Net Income = $7,475 - ($3,525 + Total Debt)

Plugging in the calculated Total Debt:

Net Income = $7,475 - ($3,525 + 0.34 * ($3,525))

Now, you can calculate the net income by solving for it.

Answer 2

Net Income is $485.4

Step-by-step explanation:

According to the accounting equation

Assets = Equity + Liabilities

So putting value of assets = 3,525, and assuming equity = x, then:

3252 = Liabilities + x

Liabilities = 3252 - x

Now putting this value in the debt to equity formula,

Debt / Equity = 0.34

(3252 - x) / x = 0.34

3252 - x = 0.34x

1.34x = 3252

x = 3252 / 1.34 = $2427 This is the value of equity.

Now

Return on Equity = Net Income / Equity

and return on equity is $2427, so by putting values in the equation, we have:

0.20 = Net Income / 2427

Net Income = $485.4