Beaver Company's records have recently been destroyed by fire. The following information was able to be saved from the fire. [table]
Return on Equity | 17.00% Debt to Assets | 35.00% Profit Margin | 8.00% Total Assets | $ 700.00
[/table] Beaver's Net Profit for the year was closest to;

Question

BlackTom AI · Accepted Answer

To start, I will extract the given relationships and totals: debt to assets is 35%, total assets are 700, the return on equity (ROE) is 17%, and the profit margin is 8%.

First, compute debt from the debt-to-assets ratio: Debt = 0.35 × 700 = 245. Then derive equity from the asset side: Equity = Total Assets − Debt = 700 − 245 = 455.

Next, apply the ROE given: ROE = Net Income ÷ Equity. With ROE = 17% (0.17) and Equity = 455, Net Income = 0.17 × 455 = 77.35.

Now compare the calculated Net Income to the provided answer choices: a. 216, b. 314, c. 67, d. 269, e. 77. The computed net income of 77.35 is closest to 77.

For additional consistency, consider the profit margin as a cross-check: Profit Margin = Net Income ÷ Sales, so Sales = Net Income ÷ 0.08. If Net Income is approximately 77.35, then Sales ≈ 964.375. This is a reasonable level of sales given the asset base and does not contradict the other figures, reinforcing the plausibility of the Net Income figure around 77.

Evaluating the options individually: 
- Option a (216) is far from 77.35, which would imply a much larger Net Income than ROE with given equity. 
- Option b (314) likewise overshoots the calculated Net Income significantly. 
- Option c (67) is closer than the first two but still notably lower than 77.35, making it less accurate than 77. 
- Option d (269) is far outside the calculated range. 
- Option e (77) aligns most closely with 77.35 and matches the ROE-derived figure best.

Overall, the logical path—calculate Debt from the ratio, derive Equity, apply ROE to find Net Income, and cross-check with the profit margin—points to the Net Income being about 77.35, which corresponds to option e.

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