A firm has ROE of 18.5%,net profit margin of 3.2% and an asset turnover ratio of 0.7.What is the firm's equity multiplier?
A)4.0
B)8.3
C)13.0
D)4.6
E)5.8

Question

Quizplus · Accepted Answer

The equity multiplier is calculated by dividing the firm's return on equity (ROE) by its net profit margin and asset turnover ratio. 
Equity Multiplier = ROE / (Asset Turnover * Net Profit Margin)
Equity Multiplier = 18.5% / (0.7 * 3.2%) = 8.3
Therefore, the answer is B, which is 8.3.

A Firm Has ROE of 18