Question

Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53 times, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income? (Round your final answer to two decimal places.)

Answer 1

Step-by-step explanation:

Given:

Asset turnover = 2.7 times

ROE = 18.7 %

Sales = $2.75 million

Equity multiplier, EM = 2.53 times

Return on asset, ROA

ROE = ROA × EM

18.7/100 = ROA × 2.53

ROA = 0.0739

ROE = Net Income/Shareholders' Equity

Asset turnover, AT = Net sales/total asset

Total asset = net sales ÷ AT

= 2,750,000 ÷ 2.7

= $1,018,500

ROA = Net income/total assets

Net income, NI = 0.0739 × $1,018,500

= $ 75,270

Answer 2

Net Income = $75,281.80

Step-by-step explanation:

Given that

Total assets turnover = sales/total assets

Where

Sales = 2.75 million

Asset turnover = 2.7

Thus

Total assets = 2750000/2.7

= $1,018,518.52

Also,

EM.= Total assets/equity

Where

EM = 2.53

Assets = $1,018,518.52

Thus,

Equity = 1,018,518.52/2.53

= $ 402,576.49

Finally,

Recall that

ROE = Net Income ÷ Equity

Therefore,

Net income = ROE × Equity

Where

ROE = 18.7 % = 0.187

NI = 0.187 × 402576.49

= $75,281.80