Question

Y3K, Inc., has salss of $12,840 total assets of $4730 ans a debt equity ratio of .25

Y3K, Inc., has sales of $12,840, total assets of $4,730, and a debt-equity ratio of 25. If its return on equity is 14 percent, what is its net income? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net income

Answer 1

Equity multiplier = 1 + Debt−equity ratio

Equity multiplier = 1 + 0.25

Equity multiplier = 1.25

Total asset turnover = Sales / Total assets

Total asset turnover = $12,840 / $4,730

Total asset turnover = 2.71 times

ROE = (Profit margin)(Total asset turnover)(Equity multiplier)

0.14 = (Profit margin)(2.71)(1.25)

Profit margin = 0.0413 or 4.13%

Profit margin = Net income / Sales

0.0413 = Net income / $12,840

Net income = $529.76