Y3K, Inc., has sales of $7,475, total assets of $3,525, and a debt-equity ratio

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).)

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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