Question

If the total debt ratio is 0.57, what is the equity multiplier?

a) 0.57
b) 1.57
c) 0.43
d) Not specified.

Answer 1

The equity multiplier is calculated by dividing the total debt ratio by one minus the total debt ratio. In this case, the equity multiplier is 1.325.

Step-by-step explanation:

The equity multiplier is the total assets divided by the total equity. It is a measure of the extent to which a company uses debt to finance its assets. To calculate the equity multiplier, you can use the formula:

Equity Multiplier = Total Debt Ratio / (1 - Total Debt Ratio)

In this case, the total debt ratio is given as 0.57, so we can substitute this value into the formula:

Equity Multiplier = 0.57 / (1 - 0.57)

Simplifying the expression, we get:

Equity Multiplier = 0.57 / 0.43 = 1.325