Question

Mobius, Inc., has a total debt ratio of 0.57. What is its debt-equity ratio? What is its equity multiplier?

Answer 1

To calculate the debt-equity ratio, divide the total debt by the total equity. The equity multiplier is found by adding 1 to the debt-equity ratio.

Step-by-step explanation:

To find the debt-equity ratio, divide the total debt by the total equity. The formula is: Debt-Equity Ratio = Total Debt / Total Equity. To find the equity multiplier, add 1 to the debt-equity ratio. The formula is: Equity Multiplier = 1 + Debt-Equity Ratio.

Let's use the given total debt ratio of 0.57 to calculate the debt-equity ratio and equity multiplier. If we assume that total debt + total equity = 1, then total equity = 1 - total debt. Plugging in the values:

1. Debt-Equity Ratio = 0.57 / (1 - 0.57)
2. Equity Multiplier = 1 + 0.57 / (1 - 0.57)

Simplifying:

1. Debt-Equity Ratio ≈ 1.3269
2. Equity Multiplier ≈ 2.3269

Therefore, the debt-equity ratio is approximately 1.3269 and the equity multiplier is approximately 2.3269.