Question

Given the following balance sheet of firm ABC, what is the firms equity multiplier? Balance Sheet (millions of $) Year 2017
Accounts payable $ 2.5 Accruals 7.5 Notes payable 11 Total current liabilities $21 Long-term bonds $34 Total liabilities $55
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Answer #1

Option (a) is correct

Equity multiplier = Total assets / Shareholder's equity

Total assets = $82, Total shareholder's equity = Total common equity = $27

Putting the values in the above formula, we get,

Equity multiplier = $82 / $27 = 3.04

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