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19 July, 13:29

Y3K, Inc., has sales of $7,475, total assets of $3,525, and a debt-equity ratio of. 34. Assume the return on equity is 20 percent. What is its net income?

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  1. 19 July, 15:58
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    Net Income is $485.4

    Explanation:

    According to the accounting equation

    Assets = Equity + Liabilities

    So putting value of assets = 3,525, and assuming equity = x, then:

    3252 = Liabilities + x

    Liabilities = 3252 - x

    Now putting this value in the debt to equity formula,

    Debt / Equity = 0.34

    (3252 - x) / x = 0.34

    3252 - x = 0.34x

    1.34x = 3252

    x = 3252 / 1.34 = $2427 This is the value of equity.

    Now

    Return on Equity = Net Income / Equity

    and return on equity is $2427, so by putting values in the equation, we have:

    0.20 = Net Income / 2427

    Net Income = $485.4
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