E. (y) only What is a firm\'s equity multiplier if its total assets are $274,000
ID: 2338555 • Letter: E
Question
E. (y) only What is a firm's equity multiplier if its total assets are $274,000, equity is $64,000, current liabilities are $48,000, and long-term liabilities are $162,000? A. more than 4.20 B. more than 3.85 but less than 4.20 C. more than 3.50 but less than 3.85 D. more than 3.15 but less than 3.50 E. less than 3.15 5. A firm's year-end price on its common stock is $74.50. The firm has a profit margin of 9.75%, total assets of $45 million, a total asset turnover ratio of 1.54, no preferred stock, and 1.25 million shares of common stock outstanding. Calculate the PE ratio for the firm. A. more than 15.20 B. more than 14.32 but less than 15.20 C. more than 13.44 but less than 14.32 D. more than 12.56 but less than 13.44 E. less than 12.56Explanation / Answer
Equity multiplier = Total assets / Equity
= $274,000 / $64,000
= 4.28125
The answer is a.
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Total asset turnover ratio = Sales / Total assets
Sales = Total assets * Total asset turnover ratio
= $45,000,000 * 1.54
= $69,300,000
Profit margin = Net income / Sales
Net income = Sales * Profit margin
= $69,300,000 * 9.75%
= $6,756,750
Earnings per share = Net income / Number of common shares outstanding
= $6,756,750 / 1,250,000
= $5.4054
PE ratio = Market price per share / Earnings per share
= $74.50 / $5.4054
= 13.78
The answer is C.
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