Question

DTO, Inc., has sales of $15 million, total assets of $12.6 million, and total debt of $5.6 million. Assume the profit margin is 8 percent. a. What is the company's net income?

Answer 1

Answer:

There the company's net income is $1.2 million.

Explanation:

Solution

Given that:

The Profit Margin is = 8% of Sales

Thus

DTO Inc's Net Income will be 8% of $ 15 million =$ 1,200,000 or $ 1.2 million

=$15 million *8% = $1.2 million

(ROA) or Return on Assets  = Net Income / Total Assets

= $ 1.2 million / $ 12.6 million

= 9.52%

Then

Total Assets = Total Debt + Total Equity

So the Total Assets are $ 12.6 million, and the Total Debt is $ 5.6 million, then the Total Equity works out to $ 7 million.

=$12.6 million - $ 5.6 million

=$7 million

Hence

Return on Equity (ROE) = Net Income / Total Equity = $ 1.2 million / $ 7 million = 17.14%