Question

Y3K, Inc., has sales of $6,229, total assets of $2,845, and a debt-equity ratio of 1.6. If its return on equity is 12 percent, what is its net income?

Answer 1

Answer: $131.31

Explanation:

The following can be gotten from the question:

Debt to equity ratio = 1.60

Since Asset = debt+ equity

Let's represent equity = x

Therefore, 2845 = 1.60x + x

2845 = 2.60x

x = 2845 / 2.60

x = 1094.23

Therefore, equity = 1094.23

Then Debt will be:

= 1094.23 × 1.60

= 1750.77

Since the return on equity is given as 12%, then:

ROE = Net Income/ equity

0.12 = Net income / 1094.23

Net income = 1094.23 × 0.12

= 131.31