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Y3K, Inc., has sales of $7,555, total assets of $3,565, and a debt−equity ratio of .42....

Y3K, Inc., has sales of $7,555, total assets of $3,565, and a debt−equity ratio of .42. Assume the return on equity is 14 percent.
  
What is its net income? (

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Answer #1

In the given case, in order to compute the net income, with return on equity is given, we have find out the equity amount. Information about total assets is given, which is to be divided to debt and equity in the ratio of 0.42 : 1. This will give the amount in the total assets.

Total Assets = 3565

Debt : Equity = 0.42 : 1

Equity = Total assets * Ratio of Equity to total assets

= 3565 * 1 / 1.42

= 2510.5634

Return on equity = 14 %

Net Income = Equity * Return on equity = 2510.5634 * 14% = $ 351.48

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