QUESTION 14 A firm has an equity multiplier of 1.4. This means that the firm has...

Question

Question

Answer 1

Answer #1

The formula to calculate equity multiplier is given below:

Equity multiplier = Total assets Total shareholders equity

Substitute 1.4 for equity multiplier and rearrange the formula,

1.4= 1 1.4 u. 0.71428= Total assets Total shareholders equity Total shareholders equity Total assets Total shareholders equit

From the above expression, it can be concluded that weight of equity in total assets is 0.71428.

The weight of debt will be (1 - 0.71428) = 0.28 (approximately).

Hence, the 2nd option is correct.

Answer 2

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