Question

SME Company has a debt-equity ratio of .60. Return on assets is 7.5 percent, and total equity is $486,000. a. What is the equity multiplier

Answer 1

Answer:Equity multiplier=1.6

Step-by-step explanation:

Debt equity ratio is given as debt/equity , Therefore

Debt = Debt equity ratio X Equity

=0.60 x $486,000

= $291,600

The Total assets given as Liability(debt+equity) will now be

=$291,600+$486,000

=$777,600.

Therefore Equity multiplier, Total assets/Total equity

=(777,600/486,000)=1.6