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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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