An Edmonton ﬁrm has a debt-equity ratio of 62 %, a total asset turnover of 1.39, and a proﬁt margin of 7.8 %. The total equity is $672,100. What is the amount of the net income?
A) $118,048
B) $119,600
C) $120,202
D) $121,212
E) $124,097

Question

Quizplus · Accepted Answer

To find the net income, first calculate total assets using the debt-equity ratio: Total Assets = Total Equity + Total Debt. With a debt-equity ratio of 0.62, Total Debt = 0.62 * Total Equity = 0.62 * $672,100 = $416,902. Total Assets = $672,100 + $416,902 = $1,089,002. Then, calculate sales using total asset turnover: Sales = Total Asset Turnover * Total Assets = 1.39 * $1,089,002 = $1,512,712.78. Finally, calculate net income using the profit margin: Net Income = Profit Margin * Sales = 0.078 * $1,512,712.78 = $118,048.20, which rounds to $118,048.

An Edmonton ﬁRm Has a Debt-Equity Ratio of 62