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      Question

      With the information given below, what is the Equity

      Multiplier of a firm?  Total Assets of the firm = 200,000 Total Debt =50,000 Total Equity =40,000
      A 2 Correct Answer Incorrect Answer
      B 4 Correct Answer Incorrect Answer
      C 5 Correct Answer Incorrect Answer
      D 1.2 Correct Answer Incorrect Answer
      E 10 Correct Answer Incorrect Answer

      Solution

      The equity multiplier is calculated by dividing a company's total asset value by total net equity, and it measures financial leverage. Companies finance their operations with equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is attributed to debt. Equity multiplier = Total Assets/Total equity = 200,000/40,000= 5

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