Question

Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income?$82,147.09$81,311.29$80,485.65$78,887.02$83,013.69

Answer 1

Answer:

$80,485.65

Explanation:

Since the debt equity ratio is 0.67 and the total equity value is $595,000. By applying the debt equity formula we can find out the total debt value which is shown below:

Debt equity ratio = (Total debt ÷ Shareholders’ Equity)

0.67 = (Total debt ÷ $595,000)

So, the total equity = $595,000 × 0.67 = $398,650

So, the total assets would be equal to

= Total debt + total equity

=  $595,000 + $398,650

= $993,650

The return on assets is 8.1%. So, here we apply the return on assets formula which is shown below:

Return on assets = (Net income) ÷ (total assets)

8.1% = Net income ÷ $993,650

Hence, net income = $80,485.65