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3 June, 16:02

Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53 times, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income? (Round your final answer to two decimal places.)

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Answers (2)
  1. 3 June, 16:10
    0
    Given:

    Asset turnover = 2.7 times

    ROE = 18.7 %

    Sales = $2.75 million

    Equity multiplier, EM = 2.53 times

    Return on asset, ROA

    ROE = ROA * EM

    18.7/100 = ROA * 2.53

    ROA = 0.0739

    ROE = Net Income/Shareholders' Equity

    Asset turnover, AT = Net sales/total asset

    Total asset = net sales : AT

    = 2,750,000 : 2.7

    = $1,018,500

    ROA = Net income/total assets

    Net income, NI = 0.0739 * $1,018,500

    = $ 75,270
  2. 3 June, 20:00
    0
    Net Income = $75,281.80

    Explanation:

    Given that

    Total assets turnover = sales/total assets

    Where

    Sales = 2.75 million

    Asset turnover = 2.7

    Thus

    Total assets = 2750000/2.7

    = $1,018,518.52

    Also,

    EM. = Total assets/equity

    Where

    EM = 2.53

    Assets = $1,018,518.52

    Thus,

    Equity = 1,018,518.52/2.53

    = $ 402,576.49

    Finally,

    Recall that

    ROE = Net Income : Equity

    Therefore,

    Net income = ROE * Equity

    Where

    ROE = 18.7 % = 0.187

    NI = 0.187 * 402576.49

    = $75,281.80
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Home » Business » Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53 times, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income? (Round your final answer to two decimal places.)
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