Question

5. Ebersoll Mining has $6 million in sales; its ROE is 12%; and its total assets turnover is 3.2x. The company is 50% equity financed. What is its net income?

Answer 1

Answer:

Sales = $6,000,000

ROE =12%

Asset Turnover = 3.2

Total Assets Turnover = Sales / Total Assets
Total Assets = Sales / Total Assets Turnover
Total Assets = $6,000,000 / 3.2
Total Assets= $1,875,000

Equity = 50% of Total Assets
Equity = 50% * $1,875,000
Equity = $937,500

Return on Equity = Net Income / Total Equity
Net Income = Return on Equity * Total Equity
Net Income = 0.12 * $937,500
Net Income = $112,500