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 $
Net income = $139.44
Under DuPont Model
ROE = Profit Margin x Total Asset turnover x Equity Multiplier
= [PM] x [TAT[ x [EM]
= [Profit Margin] x [Sales / Total Asset] x [1 + Debt-Equity Ratio]
By Solving this
Profit Margin = [(ROE x Total Assets] / [(1 + Debt-Equity Ratio) x Sales]
Profit margin = [(0.12 x $2,905)] / [(1+1.50 ) x $6,289]
Profit margin = 0.022172
Then Find the Net income using the Profit Margin ratio formula
Profit Margin = Net Income / Sales
0.022172 = Net Income / $6,289
Net Income = $6,289 x 0.022172
Net Income = $139.44
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