Homework SourseY3K Inc has sales of 6289 total assets of 2905 and a debtequ
Y3K, Inc., has sales of $6,289, total assets of $2,905, and a debt?equity ratio of 1.5. If its return on equity is 12 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 $
Solution
Net Income is $ 139.44
Working:
| Debt-Equity Ratio | = | Total Liabilities / Total Equity | |||||
| 1.5 | = | Total Liabilities / Total Equity | |||||
| So, | |||||||
| Total Liabilities | 1.5 | ||||||
| Total Equity | 1 | ||||||
| Total | 2.5 | ||||||
| As per Balance sheet equation, | |||||||
| Total Assets | = | Total Liabilities + Total Equity | |||||
| Total Assets | = | $ 2,905 | |||||
| So, | |||||||
| Total Equity | = | (2905/2.5)*1 | |||||
| = | $ 1,162 | ||||||
| Net Income | = | Total Equity x Return on Equity | |||||
| = | $ 1,162 | x | 12% | ||||
| = | $ 139.44 | ||||||
