Jones Mfg.has current assets of $26,900,net working capital of $8,200,long-term debt of $21,500,and total equity of $57,800.What is the equity multiplier?

Question

Quizplus · Accepted Answer

The equity multiplier is calculated as Total Assets / Total Equity. First, we need to find Total Assets, which can be calculated by adding Net Working Capital to Long-Term Debt and then adding Current Assets (since Net Working Capital = Current Assets - Current Liabilities, and thus Current Liabilities are already accounted for in the Net Working Capital). So, Total Assets = $26,900 (Current Assets) + $8,200 (Net Working Capital) + $21,500 (Long-Term Debt) = $56,600. Then, the equity multiplier = Total Assets / Total Equity = $56,600 / $57,800 = 0.9792, which is not an option provided, indicating a mistake in the calculation process. The correct process should involve understanding that Total Assets = Current Assets + Non-Current Assets, and since we're given Net Working Capital (Current Assets - Current Liabilities) and not directly the Non-Current Assets, we should correct our approach: Total Assets = Total Equity + Total Debt. Here, Total Debt includes Long-Term Debt, but without knowing Current Liabilities directly, we cannot accurately calculate Total Assets as initially attempted. The correct calculation involves using the formula for the equity multiplier, which is Total Assets / Total Equity, but with the given information, a direct calculation mistake was made. The correct approach to find the equity multiplier involves understanding it reflects how much of a company's assets are financed by equity. Without direct numbers for total assets or a clear path to calculate it from given data (Current Assets, Net Working Capital, Long-Term Debt, Total Equity), the calculation provided was incorrect. The correct calculation should start with understanding the relationship between the given financial metrics and the equity multiplier formula.

Jones MfgHas Current Assets of $26,900,net Working Capital of $8,200,long-Term Debt