SME Company has a debt-equity ratio of .70. Return on assets is 7.8 percent, and total equity is $530,000. a. What is the equity multiplier? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

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Dryomys Dryomys · Answer 1 · 2019-09-26T06:59:27+02:00

Answer: (a) 1.70

(b) 13.26%

(c) $70,278.00

Explanation:

Given that,

Debt-equity ratio = 0.70

Return on assets = 7.8%

Total equity = $530,000

Debt = 0.70 × Equity

= 0.70 × $530,000

= $371,000

Assets = Debt + Equity

= $371,000 + $530,000

= $901,000

(a) [tex]Equity\ multiplier = \frac{Assets}{Equity}[/tex]

[tex]Equity\ multiplier = \frac{901,000}{530,000}[/tex]

= 1.70

(b) Return on Assets = Assets × Return on assets percent

=$901,000 × 7.8%

= $70,278.00

[tex]Return\ on\ Equity = \frac{Return\ on\ Assets}{Equity}[/tex]

[tex]Return\ on\ Equity = \frac{70,278.00}{530,000}[/tex]

= 13.26%

(c) Net income = Return on Assets

= $70,278.00