Sme company has a debt-equity ratio of .57. return on assets is 7.9 percent, and total equity is $620,000. a. what is the equity multiplier. b. what is the return on equity? c. what is the net income?

(a) 1.57

(b) 12.40%

(c) $76,898.60

Explanation:

Debt-equity ratio = Debt ÷ equity

Hence,

Debt = 0.57 equity

         = 0.57 × $620,000

        = $353,400

Total assets = Debt + Equity

                     = 353,400 + 620,000

                    = $973,400

(a) Equity multiplier:

=Total assets ÷ Equity

= $973,400 ÷ 620,000

= 1.57

(c) Return on assets = Net income ÷ Total assets

Net income = ($973,400 × 0.079)

                    = $76,898.60

(b) Return On Equity:

= Net income ÷ Total equity

= $76,898.60 ÷ 620,000

= 12.40%(Approx).

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