Question: please help, i dont understand how they get the equity multiplier and the debt-equity ratio 23. (5 points) Jiminy Cricket Removal has a profit margin
please help, i dont understand how they get the equity multiplier and the debt-equity ratio
23. (5 points) Jiminy Cricket Removal has a profit margin of 7.6 percent, total asset turnover of 1.73, and ROE of 17.2 percent. What is this firm's debt-equity ratio? We can use the Du Pont identity and solve for the equity multiplier. With the equity multiplier we can find the debt-equity ratio. Doing so we find: ROE =( Profit margin )( Total asset turnover )( Equity multiplier ) .1720=(.076)(1.73)( Equity multiplier) Equity multiplier =1.31 Now, using the equation for the equity multiplier, we get: Equity multiplier =1+ Debt-equity ratio 1.31=1+ Debt-equity ratio Debt-equity ratio =.31
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