SME Company has a debt-equity ratio of. 57. Return on assets is 7.9 percent, and total equity is $620,000. a. What is the equity multiplier. b. What is the return on equity? c. What is the net income?

(a) 1.57

(b) 12.40%

(c) $76,898.60

Explanation:

Debt-equity ratio = Debt : equity

Hence,

Debt = 0.57 equity

= 0.57 * $620,000

= $353,400

Total assets = Debt + Equity

= 353,400 + 620,000

= $973,400

(a) Equity multiplier:

=Total assets : Equity

= $973,400 : 620,000

= 1.57

(c) Return on assets = Net income : Total assets

Net income = ($973,400 * 0.079)

= $76,898.60

(b) Return On Equity:

= Net income : Total equity

= $76,898.60 : 620,000

= 12.40% (Approx).