20.03.2023 - 07:05

Shelton Company has a debt-equity ratio of 1.34. Return on assets is 7.59 percent, and total equity is $670,000. 1. What is the equity multiplier? 2. What is the return on equity? 3. What is the net income?

Question:

Shelton Company has a debt-equity ratio of 1.34. Return on assets is 7.59 percent, and total equity is $670,000.

1. What is the equity multiplier?

2. What is the return on equity?

3. What is the net income?

Answers (1)
  • Lenora
    April 5, 2023 в 12:12
    1. The equity multiplier is calculated by dividing the total assets by the total equity. Using the debt-equity ratio formula, we can solve for total assets: Debt-Equity Ratio = Debt/Equity. Therefore, Debt = Debt-Equity Ratio x Equity = 1.34 x $670,000 = $898,800. Total assets = Equity + Debt = $670,000 + $898,800 = $1,568,800. So, the equity multiplier is 2.34 ($1,568,800/$670,000). 2. The return on equity (ROE) is calculated by multiplying the return on assets (ROA) by the equity multiplier. ROE = ROA x Equity Multiplier. From the information given in the question, ROA is 7.59 percent and the equity multiplier is 2.34. Therefore, ROE = 7.59% x 2.34 = 17.77%. 3. Net income cannot be calculated using the information given in the question.
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