Answer:
a. Net income = $1,200,000
b. ROA = 9.52%
c. ROE = 17.14%
Explanation:
a. Since in the given question, the profit margin is 8 percent.
So, the net income = Sales × Profit margin
= $15,000,000 × 8%
= $1,200,000
Hence, the net income is $1,200,000
b. The formula for Return on Assets (ROA) is shown below:
= Net income ÷ Total Assets
= $1,200,000 ÷ $12,600,000
= 9.52%
Thus, the Company ROA is 9.52%
c. The formula for Return on Equity (ROE) is displayed below:
= Net income ÷ Total Equity
Since the total assets and total debt is given so we can calculate the total equity by applying accounting equation which is equals to
Total assets = Total liabilities + Total equity
$12,600,000 = $5,600,000 + Total Equity
$12,600,000 - $5,600,000 = Total Equity
Total Equity is $7,000,000
So, the total equity is $7,000,000.
Now, the ROE is
= Net income ÷ Total Equity
= $1,200,000 ÷ $7,000,000
= $17.14 %
Thus, the total equity is $17.14 %