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      Question

      A company’s ROE is 18%. Net profit margin is 12%,

      asset turnover is 1.5 times. Calculate the equity multiplier.
      A 3.0 Correct Answer Incorrect Answer
      B 1.5 Correct Answer Incorrect Answer
      C 1.0 Correct Answer Incorrect Answer
      D 2.0 Correct Answer Incorrect Answer
      E None Correct Answer Incorrect Answer

      Solution

      • ROE = Net margin × Asset turnover × Equity multiplier. 18% = 12% × 1.5 × EM → 0.18 = 0.18 × EM → EM = 1.0.

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