A firm's ROE is equal to 9% and its ROA is equal to 6%.The firm finances only with short-term debt,long-term debt,and common equity,so assets equal total invested capital.The firm's total debt to total capital ratio must be 50%.

Question

Quizplus · Accepted Answer

Equity multiplier = ROE/ROA = 9%/6% = 1.5
E/A = 1/1.5 = 0.6667
D/A = 1 - 0.6667 = 0.3333
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Since assets = Total invested capital,Debt/Total invested capital = 33.33%.Therefore,the statement is false.

A Firm's ROE Is Equal to 9% and Its ROA