Question

Equity Multiplier and Return on Equity Synovec Company has a debt-equity ratio of .85. Return on assets is 7.3 percent, and total equity is $910,000. What is the equity multiplier? Return on equity? Net income?

Answer 1

The equity multiplier for Synovec Company is 1.85. The return on equity for Synovec Company is 13.5%. Net income cannot be calculated based on the given information.

Step-by-step explanation:

The equity multiplier is a financial ratio that measures the amount of debt a company uses to finance its assets. It is calculated by dividing total assets by total equity. In this case, the debt-equity ratio is given as 0.85, which means that for every dollar of equity, the company has $0.85 of debt. The equity multiplier can be calculated as:

Equity Multiplier = 1 + Debt-Equity Ratio

Therefore, the equity multiplier for Synovec Company is 1 + 0.85 = 1.85.

Return on equity (ROE) is a profitability ratio that measures the return generated by the company for its shareholders' investment. It is calculated by multiplying the return on assets (ROA) with the equity multiplier. In this case, ROA is given as 7.3 percent and the equity multiplier is 1.85. The return on equity can be calculated as:

Return on Equity = Return on Assets * Equity Multiplier

Therefore, the return on equity for Synovec Company is 7.3% * 1.85 = 13.5%.

Net income is not given in the question, so it cannot be calculated.