Y3K, Inc., has sales of $7,395, total assets of $3,485, and a debt-equity ratio
ID: 2760362 • Letter: Y
Question
Y3K, Inc., has sales of $7,395, total assets of $3,485, and a debt-equity ratio of .26. Assume the return on equity is 17 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).)
Y3K, Inc., has sales of $7,395, total assets of $3,485, and a debt-equity ratio of .26. Assume the return on equity is 17 percent.
Explanation / Answer
The data of Y3K, Inc., is given below
The sales is $ 7,395
The total assets is $ 3,485
The return on equity is 17%
The debt – equity ratio is .26
First we calculate the the value of debt and equity , the formula is
Total assets = debt + equity
The debt - equity ratio is .26 means if equity is 1 then debt is .26 of equity , then total liabilties (debt + equity ) is 1.26 , given in problem the total assets is $ 3,485
To caculate equity value is given below
= 3,485 /1.26 * 1
= 2,765.87
We will calculate debt value , which is total assets minus equity
= 3,485 – 2.765.87
= 719.13
Now we have the value of equity is $2,765.87 and debt $ 719.13
Now we will calculate the equity multipier , which means how much of total assets are financed by equity , the formula to calculate equity multiplier is
Equity multipier = total assets / total equity
= 3485 /2765.87
= 1.26
The equity multiplier ratio is 1.26
Now we will calculate the total asset turnover , which means the sales generated in relation to total assets , the formula is
= sales / total assets
= 7,395 / 3485
= 2.12
The total asset turnover is 2.12
Now we will calculate net income , the formula is
Return on equity = net income /equity
17% = net income / 2765.87
Net income = 17% x 2765.87
Net income = 470.20 ( round off to 2 decimals)
Now we will calculate the profit % , which means the % of net income in relation to sales , the formula is
‘= net income / total sales * 100
= 470.20 / 7.395 * 100
= 6.36 %
The profit ratio os 6.36%
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