Isolation Company has a debt–equity ratio of 0.80. Return on assets is 8.7 percent, and total equity is $515,000.

Isolation Company has a debt–equity ratio of 0.80. Return on assets is 8.7 percent, and total equity is $515,000.

  

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

Equity multiplier

 

What is the return on equity? (Round your answer to 2 decimal places. (e.g., 32.16))

 

Return on equity

%

 

What is the net income?

  

Net income

$

Explanation:

The equity multiplier is:

  

EM = 1 + D/E

EM = 1 + 0.80 = 1.80

  

One formula to calculate return on equity is:

  

ROE = (ROA)(EM)

ROE = 0.087(1.80) = 0.1566, or 15.66%

  

ROE can also be calculated as:

  

ROE = NI / TE

    

So, net income is:

  

NI = ROE(TE)

NI = (0.1566)($515,000) = $80,649