Question

ME Company has a debt-equity ratio of .57. Return on assets is 7.9 percent, and total equity is $620,000. a. What is the equity multiplier?

Answer 1

Answer:

8.06

Explanation

• Debt equity ratio=Debt÷ Equity
• Debt÷Equity=0.57
• Equity=620,000 in this question
• Debt=620,000*0.57=353,400.
• Assets=Debt+Equity
• Assets in this case=353,400+620,000=973,400
• Return on asset=Profit for the year=7.9%*973,400=76898.6
• Equity Multiplier=Total Equity/Profit for the year
• Equity Multiplier=620,000/76898.6=8.06