Y3K, Inc., has sales of $4,600, total assets of $3,430, and adebt-equity ratio of 1.50....

Y3K, Inc., has sales of $4,600, total assets of $3,430, and a debt-equity ratio of 1.50. If its return on equity is 19 percent, what its net income?

Expert Solution

The net income is computed as follows:

Equity multiplier is computed as follows:

= 1 + debt - equity ratio

= 1 + 1.50

= 2.50

So, equity will be as follows:

Equity multiplier = Total Assets / Total Equity

Total Equity = Total Assets / 2.50

Total Equity = $ 3,430 / 2.50

Total Equity = $ 1,372

So, the net income will be as follows:

= return on equity x total equity

= 19% x $ 1,372

= $ 260.68

jeff jeffy answered 2 years ago

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