Question

You are thinking of investing in Nikki T's, Incorporated. You have only the following information on the firm at year-end: net income is 270,000, total debt is2.67 million, and debt ratio is 60 percent. What is the equity of Nikki T's, Incorporated at year-end?

1) Cannot be determined
2) $1,080,000
3) $1,620,000
4) $4,450,000

Answer 1

The equity of Nikki T's, Incorporated at year-end is $1,780,000.

Step-by-step explanation:

The equity of Nikki T's, Incorporated can be calculated by subtracting the total debt from the total assets. The debt ratio is the proportion of total debt to total assets, expressed as a percentage. In this case, we know that the debt ratio is 60 percent. We can use this information to calculate the total assets:

Total assets = Total debt / Debt ratio = 2.67 million / 0.6 = 4.45 million

Next, we can calculate the equity:

Equity = Total assets - Total debt = 4.45 million - 2.67 million = 1.78 million

Therefore, the equity of Nikki T's, Incorporated at year-end is $1,780,000.