Last year, Stumble-on-Inn, Inc., reported an ROE of 20 percent. The firm’s debt
ID: 2732425 • Letter: L
Question
Last year, Stumble-on-Inn, Inc., reported an ROE of 20 percent. The firm’s debt ratio was 60 percent, sales were $32 million, and the capital intensity was 1.20 times.
Calculate the net income for Stumble- on-Inn last year. (Do not round intermediate calculations. Enter your answer in dollars not in millions.)
Net income
$ ______________
Last year, Stumble-on-Inn, Inc., reported an ROE of 20 percent. The firm’s debt ratio was 60 percent, sales were $32 million, and the capital intensity was 1.20 times.
Explanation / Answer
Capital Intensity Ratio = Total Assets / Sales 1.2 = Total assets / $ 32 Million Therefore, Total Assets = $38.4 Million Debt Ratio = Debt / Total Assets 0.6 = Debt / $38.4 Million Therefore, Debt = $23.04 Million Total Equity = Total Assets - Total Debt =$38.4 Million - $23.04 Million =$15.36 Million Net Income = ROE * Total Equity =$15.36 Million * 20% =$3,072,000
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