Return on assets 753 debtequity ratio 069 1 What is the eq

Return on assets = 7.53%, debt-equity ratio = 0.69. 1) What is the equity multiplier? 2) What is the return on equity? Please show all steps.

Solution

Answer 1.

Equity Multiplier = 1 + Debt-Equity Ratio
Equity Multiplier = 1 + 0.69
Equity Multiplier = 1.69

Answer 2.

Return on Equity = Return on Assets * Equity Multiplier
Return on Equity = 7.53% * 1.69
Return on Equity = 12.73%