If a ﬁrm has a total debt ratio of 0.5, what is its equity multiplier?
A) 2.00 times
B) 0.50 times
C) 0.67 times
D) 1.50 times
E) 3.00 times

Name: If a ﬁrm has a total debt ratio of 0.5, what is its equity multiplier? A) 2.00 times B) 0.50 times C) 0.67 times D) 1.50 times E) 3.00 times
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Question

Quizplus · Accepted Answer

The total debt ratio of 0.5 means that the firm's debt is 50% of its total assets. Therefore, equity is also 50% of total assets. The equity multiplier is calculated as 1 / (1 - debt ratio) = 1 / 0.5 = 2.00 times.

If a ﬁRm Has a Total Debt Ratio of 0