SME Company has a debt-equity ratio of .60. Return on assets Is 8.4 percent, and

Question

SME Company has a debt-equity ratio of .60. Return on assets Is 8.4 percent, and total equity is $550,000. What is the equity multiplier? (Do not round Intermedlate calculations and round your answer to 2 decimal places, e.g., 32.16.) What is the return on equity? (Do not round Intermedlete calculations and enter your answer as a percent rounded to 2 declmal places, e.g., 32.16.) a. b. c. What Is the net Income? (Do not round Intermedlete calculetlons and round your answer to the nearest whole number, e.g, 32.) a. Equity multiplier b. Return on equity c. Net income times 96

Explanation / Answer

Debt equity ratio = total liabilities / total equity

   .60 = L /550000

   .60*550000 = L

     Liabilities = 330000

Total asset =Liabilities +equity

= 330000+550000

        = 880000

a)Equity multiplier= Total asset /total equity

             = 880000/550000

            = 1.6

b)Return on equity =Return on asset *equity multiplier

              == 8.4 * 1.6

               = 13.44%

c)Return on equity= Net income / total equity

    13.44 % = NI /550000.

    .1344 * 550000 =NI

      NI = 73920

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