Question
In: Finance
a firm has total assets of $79,600, cash of $25,000 and a debt-equity ratio of 0.25....
a firm has total assets of $79,600, cash of $25,000 and a debt-equity ratio of 0.25. What is the equity multiplier?
Solutions
Expert Solution
Debt- equity = 0.25
It means that debt is 25% of equity
So, let debt = 0.25
Equity = 1
Debt weightage = 0.25 / ( 1 + 0.25)
= 0.20 or 20%
Equity = 1 - debt weightage
= 1 - 0.20
= 0.80
We know that assets = debt + equity
So, equity = assets × equity weightage
= 79600 × 80%
= 63680
Equity multiplier = Total assets / equity
= 79600 / 63680
= 1.25
So, the equity multiplier is 1.25
jeff jeffy answered 2 years agoRelated Solutions
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rev: 09_17_2012
$561.00
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