A firm has sales of $500, total assets of $300, and a debt/equity ratio of 1. If its return on equity is 15%, what is its net income?
A) $7.50
B) $15.00
C) $22.50
D) $32.50
E) $50.00

Question

Quizplus · Accepted Answer

The debt/equity ratio of 1 implies that equity equals debt, so equity is $150 (since total assets are $300, and assets = debt + equity). With a return on equity of 15%, net income is 15% of $150, which is $22.50.

A Firm Has Sales of $500, Total Assets of $300