Question

Isolation Company has a debt–equity ratio of 0.7. Return on assets is 7 percent, and total equity is $526,004.

What is the net income? (round 2 decimal places)

Answer 1

The net income is computed as shown below:

Total liabilities is computed as follows:

= debt-equity ratio x total equity

= 0.7 x $ 526,004

= $ 368,202.8

Total Assets is computed as follows:

= Total liabilities + Total Equity

= $ 368,202.8 + $ 526,004

= $ 894,206.8

So, the net income is computed as follows:

= Return on Asset x Total Assets

= 7% x $ 894,206.8

= 62,594.48 Approximately