An equity multiplier of 1.64 means that for every $1 the firm raises in new equity, the firm can:
A) Acquire an additional $1.64 in new assets.
B) Acquire an additional $1.64 in new debt.
C) Earn $1.64 in additional profits.
D) Earn $1.64 in additional profits per share.
E) Pay $1.64 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. A multiplier of 1.64 means that for every $1 of equity, the company has $1.64 in assets, indicating that assets are acquired through both equity and debt.

An Equity Multiplier of 1