Synovec Company has a debt–equity ratio of .75. Return on assets is 8.6 percent,
ID: 2810371 • Letter: S
Question
Synovec Company has a debt–equity ratio of .75. Return on assets is 8.6 percent, and total equity is $914,000.
What is the company's equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
What is the company's return on equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
What is the company's equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Equity multiplier = Total Assets/Equity
Total Assets = Total liabilities + Shareholders' equity
Debt/Equity = 0.75
Debt = 0.75 * Equity = 0.75 * $914,000 = $685,500
Assuming company's liabilities only houses this debt
Total Assets = $685,500 + $914,000 = $1,599,500
Equity Multiplier = $1,599,500/914,000 = 1.75
Return on Assets = Net Income/Total Assets
=> Net Income = ROA * Total Assets = 8.6% * $1,599,500 = $137,557
ROE = Net Income/Equity = $137,557/$914,000 = 15.05%
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