Diamond Eyes, 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.

  

What is net income? (Enter your answer in dollars not in millions, i.e. 1,234,567.)

 

Net income

$

  

What is ROA? (Round your answer to 2 decimal places. (e.g., 32.16))

  

ROA

%

 

What is ROE? (Round your answer to 2 decimal places. (e.g., 32.16))

  

ROE

%

Explanation:

We need to find net income first. So:

  

Profit margin = Net income / Sales

Net income = Sales(Profit margin)

Net income = ($15,000,000)(0.08) = $1,200,000

  

ROA = Net income / TA = $1,200,000 / $12,600,000 = 0.0952, or 9.52%

  

To find ROE, we need to find total equity. Since TL & OE equals TA:

TA = TD + TE

TE = TA − TD

TE = $12,600,000 − 5,600,000 = $7,000,000

   ROE = Net income / TE = $1,200,000 / $7,000,000 = 0.1714, or 17.14%