Question

Use the following information to answer this question. Windswept, Inc. 2017 Income Statement ($ in millions) Net sales $ 11,400 Cost of goods sold 8,150 Depreciation 440 Earnings before interest and taxes $ 2,810 Interest paid 108 Taxable income $ 2,702 Taxes 946 Net income $ 1,756 Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions) 2016 2017 2016 2017 Cash $ 320 $ 350 Accounts payable $ 1,950 $ 2,022 Accounts rec. 1,190 1,090 Long-term debt 1,110 1,393 Inventory 2,120 1,805 Common stock 3,440 3,070 Total $ 3,630 $ 3,245 Retained earnings 690 940 Net fixed assets 3,560 4,180 Total assets $ 7,190 $ 7,425 Total liab. & equity $ 7,190 $ 7,425 What is the equity multiplier for 2017?

Answer 1

Answer:

1.85

Explanation:

Given:

In 2017:

Net sales = $11,400

Cost of goods sold = $8,150

Depreciation = $440

Earnings before interest and taxes = $2,810

Taxes = $946

Net income = $1,756

Now,

Equity Multiplier (2017) = $\frac{\textup{Total Assets of 2017}}{\textup{Stockholder's equity for 2017}}$

Total assets of 2017 = $7,425  [given in the question]

Stockholder's equity for 2017

= Common Stock of 2017 + Retained earnings of 2017

= $3,070 + $940

= $4,010

Therefore,

Equity Multiplier (2017) = $\frac{\textup{7,425}}{\textup{4,010}}$

or

Equity Multiplier (2017) = 1.85