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Precious Metal Mining has $9 million in sales, its ROE is 17%, and its total assets...

Precious Metal Mining has $9 million in sales, its ROE is 17%, and its total assets turnover is 2.5x. Common equity on the firm’s balance sheet is 80% of its total assets. What is its net income? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. Do not round intermediate steps. Please show how with step by step with a calculator.

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Answer #1

Sales = $9,000,000

Asset turnover = Sales / Total assets = 2.5

Total assets = $9,000,000 / 2.5 = $3,600,000

Common Equity = 80% of $3,600,000 = $2,880,000

ROE = 17% = Net Income / Common equity

Net income = 0.17 * $2,880,000 = $489,600

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