Question

Y3K, Inc., has sales of $6,289, total assets of $2,905, and a debt?equity ratio of 1.5....

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           $

Homework Answers

Answer #1

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
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