Question

2.5 Stephanie, Inc. has a profit margin of 9 percent, total asset turnover of 1.5, and ROE of 17.20 percent. What is this firm's debt-equity ratio? 2.6 For the past year, David, Inc. had a cost of goods sold of $18,364. At the end of the year, the accounts payable balance was $4,205. a. (6 points) How long on average did it take the company to payoff its suppliers during the year? b. (4 points) What might a large value for the days' sales in payables ratio imply? 2.7 Kim, Inc. has a debt-equity ratio of 0.70. Return on assets is 8.4%, and total equity is 00,000. a. (5 points) What is the equity multiplier? b. (3 points) What is the return on equity? c. (2 points) What is the net income?

Answer 1

2.5

Debt-equity can be calculated if, equity multiplier is known.

Equity multiplier is calculated below:

$ROE=Equity\, multiplier\times Profit\, margin\times Total\, asset\, turnover$

$0.1720=Equity\, multiplier\times 0.09\times 1.5$

$\frac{0.1720}{0.09\times 1.5}=Equity\, multiplier$

Debt-equity ratio is calculated below:

Debt-equity ratio is 0.27.