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 equity and debt-equity ratio: Total Assets = Equity * (1 + Debt-Equity Ratio) = $672,100 * (1 + 0.62) = $1,088,002. Then, calculate sales using total asset turnover: Sales = Total Assets * Total Asset Turnover = $1,088,002 * 1.39 = $1,511,322.78. Finally, calculate net income using the profit margin: Net Income = Sales * Profit Margin = $1,511,322.78 * 0.078 = $118,048.38, which rounds to $118,048.

An Edmonton Firm Has a Debt-Equity Ratio of 62