Isolation Company has a debt–equity ratio of 0.80. Return on assets is 7.2 percent, and total equity is $490,000.

What is the equity multiplier?

The equity multiplier: Assets/Equity = 1 + Debt/Equity, here: 1.80

What is the Return on Equity?

Using DuPont analysis...ROE = ROA * Equity Multiplier = 7.2% * 1.80 = 12.96%

What is the Net Income?........

Since ROE = Net Income "NI" /Shareholder Equity....

convert ROE to decimal form: 12.96 /100 = 0.1296, then use the formula...

0.1296 = NI / 490,000

0.1296 * 490,000 = NI

$63,504 = NI

Isolation Company has a debt–equity ratio of 0.80. Return on assets is 7.2 percent, and total equity is $490,000.



What is the equity multiplier?

What is the Return on Equity?

What is the Net Income?