Question

Isolation Company has a debt-equity ratio of .80. Return on assets is 7.9 percent, and total equity is $480,000. What is the equity multiplier? (Round your answer to 2 decimal places. (e.g., 32.16)) Equity multiplier 1.80 What is the return on equity? (Round your answer to 2 decimal places. (e.g., 32.16)) Return on equity % What is the net income? Net income $

Answer 1

Debt-equity ratio=debt/equity

Hence debt=0.8*equity

=(0.8*480,000)=$384,000

Total assets=Total liabilities+Total equity

=(480,000+384,000)=$864,000

Equity multiplier=Total assets/equity

=(864,000/480,000)=1.8

ROA=Net income/Total assets

Net income=(864,000*7.9%)=$68256

ROE=Net income/equity

=(68256/480,000)=14.22%