Question

Norton Company has a debt-to-equity ratio of 2.20, ROA of 12.50 percent, and total equity of $1,689,000. What are the company’s equity multiplier, debt ratio, and ROE? (Round answers to 2 decimal places, e.g. 12.55 or 12.55%.)

The company’s equity multiplier is , its debt ratio is , and its ROE is

Answer 1

Equity multiplier = 1 + debt-equity ratio

Equity multiplier = 1 + 2.20 = 3.20

------------

Debt -equity ratio = 2.20 = 2.20/ 1

which implies Debt = 2.20 and equity = 1

so Total assets = 2.20 + 1= 3.20

Debt ratio = Total debt /Total assets = 2.20/3.20 = 0.6875 = 68.75%

-----------

ROA = 12.50%

ROE = ROA X Equity multiplier

ROE = 12.50% X 3.20 = 40.00 %

--------------------

ANSWERS : 3.20. 68.75%, 40.00% [Thumbs up please]

-------------------