what did I do wrong? I thought its 1/1-.85=0.15 ? (DuPont analysis) Garwryk, Inc

Question

what did I do wrong?

I thought its 1/1-.85=0.15 ?

(DuPont analysis) Garwryk, Inc., which is financed with debt and equity, presently has a debt ratio of 85 percent. What is the firm's equity multiplier? How is the equity multiplier related to the firm's use of debt financing (i.e., if the firm increased its use of debt financing would this increase or decrease its equity multiplier)? Explain. What is the firm's equity multiplier? The equity multiplier is given by: 1 Equity Multiplier =1/1 - Debt Ratio The equity multiplier is |0.15|. (Round to two decimal places.)

Explanation / Answer

Equity multiplier= 1/(1-0.85)=6.67

if the firm increases the debt porition, it will increase the equity multiplier as there is positive relation.

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