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 a financial leverage ratio that measures the portion of a company's assets that are financed by stockholder's equity. An equity multiplier of 0.64 means that for every $1 of equity, the company has $0.64 in assets. This interpretation aligns with the concept of acquiring additional assets rather than the other options provided.

An Equity Multiplier of 0