The Medicine Cabinet has a return on equity of 18.2 percent, a profit margin of 11.6 percent, and total equity of $738,000. What is the net income?
A) $85,608
B) $113,875
C) $134,316
D) $142,311
E) $149,897

Question

Quizplus · Accepted Answer

We can use the formula: 
Net Income = Total Equity * (Return on Equity - Equity Multiplier)

First, we need to calculate the Equity Multiplier: 
Equity Multiplier = 1 / (1 - Debt-to-Equity Ratio)
Since there is no information given about the company's debt, we assume it has none and the Debt-to-Equity Ratio is 0. 
Thus, Equity Multiplier = 1 / (1 - 0) = 1.

Next, we can substitute the given values: 
Net Income = $738,000 * (18.2% - 1) * 11.6% = $134,316.

Therefore, the correct answer is C.

The Medicine Cabinet Has a Return on Equity of 18