Y3K, Inc., has sales of $7,475, total assets of $3,525, and a debt-equity ratio
ID: 409176 • Letter: Y
Question
Y3K, Inc., has sales of $7,475, total assets of $3,525, and a debt-equity ratio of .34. Assume the return on equity is 20 percent.
What is its equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
What is its total asset turnover? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
What is its profit margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
What is its net income? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Required:What is its equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Explanation / Answer
ROE = 0.15 = (PM)(TAT)(EM) = (PM)(S / TA)(1 + D/E)
Solving the DuPont Identity for profit margin, we get:
PM = [(ROE)(TA)] / [(1 + D/E)(S)]
PM = [(0.20)(3525)] / [(1 + 0.34)( $7475)] = 0.070383867
Now that we have the profit margin, we can use this number and the given sales figure to solve for net income:
PM = 0.070383867= NI / S
NI = 0.070383867 ($7475) = $526.119403
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