Trying to figure out what the gross profit or cost production is for this problem... unsure on how to solve it? :confused:

Ebersoll Mining:
Has $6 million in sales
ROE is 12%
Total assets turnover is 3.2x
The company is 50% equity financed
What is the net income?


Net Income = Sales - Gross profit; Gross Profit - Cost of Production = Net Income

NI = 6.0 -

First, use the given sales amount and the asset turnover ratio to get the total assets.

\text{Asset Turnover} \ =\ \frac{\text{Sales}}{\text{Assets}}

Then, per the given debt-to-equity info, Equity is half the assets.

Finally, you can determine Net Income using the Assets amount, and the given ROE.