A firm reported an ROE of 19%. The firm's debt ratio was 45%, sales were $12 million, and the capital intensity ratio was 1.1 times. Calculate the net income for the firm.

Question

Quizplus · Accepted Answer

To find net income, use the formula ROE = Net Income / Equity. First, calculate equity: Total Assets = Sales * Capital Intensity Ratio = $12M * 1.1 = $13.2M. Equity = Total Assets * (1 - Debt Ratio) = $13.2M * (1 - 0.45) = $7.26M. Then, Net Income = ROE * Equity = 0.19 * $7.26M = $1.38M.

A Firm Reported an ROE of 19