In words, what does an equity multiplier of 2 mean?
A) Each dollar in assets the firm owns is supported by $2 in equity.
B) Each dollar in equity the firm has supports $2 in assets.
C) Each dollar in assets the firm owns is supported by $4 in equity.
D) Each dollar in equity the firm has supports fifty cents in assets.
E) Each dollar in assets the firm owns is supported by $2 in debt.

Question

Quizplus · Accepted Answer

The equity multiplier is calculated as total assets divided by total equity, indicating how much of the assets are financed by equity. An equity multiplier of 2 means that for every dollar of equity, there are $2 in assets, indicating a 1:2 ratio of equity to assets.

In Words, What Does an Equity Multiplier of 2 Mean