a. Equity multiplier is computed as follows:
= 1 + debt equity ratio
= 1 + 1.39
= 2.39 times
b. Return on equity is computed as follows:
= Return on Assets x equity multiplier
= 0.0764 x 2.39
= 18.26% Approximately
c. Net income is computed as follows:
= Return on equity x Total Equity
= (0.0764 x 2.39) x $ 695,000
= $ 126,904 Approximately
Feel free to ask in case of any query relating to this question
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