Coulter Supply has a total debt ratio of .46. What is the equity multiplier?
A) 0.89
B) 1.17
C) 1.47
D) 1.85
E) 2.17

Question

Quizplus · Accepted Answer

Equity multiplier = Total assets/Total equity 
Total debt ratio = Total debt/Total assets

By rearranging the formula for total debt ratio, we get:

Total debt/Total assets = 0.46

Therefore, the remaining portion of assets is financed by equity:

Total equity/Total assets = 1 - 0.46 = 0.54

Now we can use this to calculate the equity multiplier:

Equity multiplier = Total assets/Total equity = 1/0.54 = 1.85

Coulter Supply Has a Total Debt Ratio of