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Queen, Inc
Queen, Inc., has a total debt ratio of .23.
a.What is its debt-equity ratio?
b.What is its equity multiplier?
SME Company has a debt-equity ratio of .60. Return on assets is 9.10 percent, and total equity is $529,000.
a.What is the equity multiplier?
b.What is the return on equity?
c.What is the net income?
Expert Solution
1-a). Computation of the debt-equity ratio:-
Equity = 1- Debt
= 1 - 0.23
= 0.77
Debt-equity ratio = Debt / Equity
= 0.23 / 0.77
= 29.87% Or 0.30
b). Computation of the equity multiplier:-
Equity multiplier = 1 + Debt-equity ratio
= 1 + 0.30
= 1.30
2-a). Computation of the equity multiplier:-
Equity multiplier = 1 + Debt-equity ratio
= 1 + 0.60
= 1.60
b). Computation of the return on equity (ROE):-
Debt-equity ratio = Debt / Equity
0.60 = Debt / $529,000
Debt = $529,000 * 0.60
= $317,400
Total assets = Debt + equity
= $317,000 + $529,000
= $846,400
Return on assets = Net income / Total assets
9.10% = Net income / $846,400
Net income = $846,400 * 9.10%
= $77,022.40
ROE = Net income / Total equity
= $77,022.40 / $529,000
= 14.56%
c). Net income = $77,022.40
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