A firm with an equity multiplier of 4.0, will have a debt ratio of:

Name: A firm with an equity multiplier of 4.0, will have a debt ratio of:
Brand: Quizplus
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Question

Quizplus · Accepted Answer

The equity multiplier is calculated as:

Equity Multiplier = Total Assets / Shareholder's Equity

We can rearrange this formula to solve for the debt ratio:

Debt Ratio = Total Debt / Total Assets = Equity Multiplier - 1

If the equity multiplier is 4.0, then the debt ratio is:

Debt Ratio = 4.0 - 1 = 0.75

Therefore, the best choice is C.

A Firm with an Equity Multiplier of 4