   Chapter 4, Problem 8P Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

DuPONT AND NET INCOME Precious Metal Mining has $17 million in sales, its ROE is 17%, and its total assets turnover is 3.2 ×. Common equity on the firm’s balance sheet is 50% of its total assets. What is its net income? Summary Introduction To determine: Net income. Introduction: DuPont Analysis: Under DuPont analysis the return on equity can be calculated as a product of profit margin, total assets turnover and equity multiplier. Explanation Given, Return on equity is (ROE) 17%. Calculate net income through ROE: Formula to calculate return on equity, Return on Equity=NetIncomeCommonEquity Substitute 17% for return on equity and$2,656,250 (refer working note) for common equity.

17%=NetIncome$2,656,250NetIncome=17%×$2,656,250=17100×$2,656,250=$451,562.5

Here, net income is $451,562.5. Working note: Given, Sales are$17 million

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