Y3k, inc., has sales of $6,239, total assets of $2,855, and a debt-equity ratio of 1.30. If its return on equity is 15 percent, what is its net income?

Question

Business

Santiago Friedman

11 July, 04:57

Y3k, inc., has sales of $6,239, total assets of $2,855, and a debt-equity ratio of 1.30. If its return on equity is 15 percent, what is its net income?

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Kendrick Rivera · Answer 1

We use the Du-Pont equation

ROE = Net profit margin (NPM) * Total asset turnover * Equity multiplier

ROE = 15% = 0.15

Total asset turnover = Sales/total assets = 6239/2855

Equity multiplier = 1 + debt-equity = 1 + 1.30 = 2.30

0.15 = NPM * 6239/2855*2.30

NPM = Set profit margin = 0.0298 = 2.98%

Net profit margin = Net income / sales

0.0298 = Net Income/6239

Net Income = $186.20