Question

SME Company has a debt-equity ratio of .57. Return on assets is 7.9 percent, and total equity is $620,000. a. What is the equity multiplier? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) answer as a percent rounded to 2 decimal places, e.g., 32.16.) answer to 2 decimal places, e.g., 32.16.) b. What is the return on equity? (Do not round intermediate calculations and enter your c. What is the net income? (Do not round intermediate calculations and round your a. Equity multiplier b.Return on equity c. Net income 353,400.00

Answer 1

(i) 1.57

(ii) 12.40%

(iii) $76,898.60

Step-by-step explanation:

Debt-equity ratio = debt/equity

Hence debt= 0.57 equity

= (0.57 × 620000)

= $353,400

Total assets = debt + equity

= (353400+620000)

= $973400

1. Equity multiplier = Total assets ÷ Equity

= $973,400 ÷ 620,000

= 1.57

3. ROA = net income ÷ Total assets

net income = ($973,400 × 0.079)

= $76,898.60

2. ROE = net income ÷ Total equity

= $76,898.60 ÷ 620,000

= 12.40%(Approx).