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    Question

    With the information given below, what is the Equity Multiplier of a firm? 

    Total Assets of the firm = 200,000

    Total Debt =50,000

    Total Equity =40,000

    A 2 Correct Answer Incorrect Answer
    B 4 Correct Answer Incorrect Answer
    C 5 Correct Answer Incorrect Answer
    D 1.2 Correct Answer Incorrect Answer
    E 10 Correct Answer Incorrect Answer

    Solution

    The equity multiplier is calculated by dividing a company's total asset value by total net equity, and it measures financial leverage. Companies finance their operations with equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is attributed to debt. Equity multiplier = Total Assets/Total equity = 200,000/40,000= 5

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