Question

Shelton Company has a debt-equity ratio of 1.33. return of assets is 7.58 percent, and total equity is 665,000. what is the equity multiplier? what is the return on equity? what is the net income?

Answer #1

**Data given:**

1. Debt / equity = 1.33

2. Profit ( Net Income ) / Total Asset * 100 = 7.58

3. Total equity = 6,65,000

**Solutions step wise**

1. Debt / equity = 1.33 i.e Debt / 665000 = 1.33. Thus
**Debt** = 665000*1.33 =
**$8,84,450**

2. **Debt + Equity = Asset,** thus Asset= 884450 +
665000 = **$15,49,450**

3. **Equity multiplier = Asset/ Equity,** thus
1549450/ 665000 = **2.33**

4. Net income / Asset*100 = 7.58 i.e Net income / 1549450 *100 =
7.58.Thus **net income = $1,17,448**

5. **Return on equity = Net income/ Equity* 100**
i.e 117448 / 665000 * 100 = **17.66%**

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Multiple Choice
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