Question

A firm has a debt-equity ratio of 0.60. What is the equity multiplier if total equity...

A firm has a debt-equity ratio of 0.60. What is the equity multiplier if total equity is $5,700?

1.

0.40
2.

0.48
3.

1.40
4.

1.60
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Homework Answers

Answer #1

4.1.60

Step-1:Calculation of total Debt
Debt-equity ratio = Debt / Equity
0.60/1.00 = Debt / $       5,700
Debt = $    5,700 * 0.60/1.00
Debt = $    3,420
Step-2:Calculation of Total assets
Total assets = Debt + Equity
= $    3,420 + $       5,700
= $    9,120
Step-3:Calculation of Equity Multiplier
Equity Multiplier = Total assets / Total Equity
= $    9,120 / $       5,700
=           1.60
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