An equity multiplier of 0.64 means that for every $1 the ﬁrm raises in new equity, the ﬁrm can:
A) Acquire an additional $0.64 in new assets.
B) Acquire an additional $0.64 in new debt.
C) Earn $0.64 in additional proﬁts.
D) Earn $0.64 in additional proﬁts per share.
E) Pay $0.64 in additional dividends per share.

Question

Quizplus · Accepted Answer

The equity multiplier is calculated as Total Assets/Total Equity. Therefore, a multiplier of 0.64 means that for every $1 of equity, the firm has $0.64 of assets. This implies that if the firm raises $1 in new equity, it can acquire an additional $0.64 in new assets.

An Equity Multiplier of 0