Question

SME Company has a debt-equity ratio of .60. Return on assets is 7.9 percent, and total equity is $510,000. a. What is the equity multiplier

Answer 1

1.60

Step-by-step explanation:

Given the above information, equity multiplier is computed as shown below.

Equity multiplier = 1 + Debt - equity ratio

Where,

Debt - equity ratio = 0.60

Therefore,

Equity multiplier = 1 + 0.60

Equity multiplier = 1.60

Hence, equity multiplier is 1.60