Question

Fincher, inc., has a total debt ratio of .82. What is its debt–equity ratio? (do not round intermediate calculations and round your answer to 2 decimal places,
e.G., 32.16.) debt–equity ratio times what is its equity multiplier? (do not round intermediate calculations and round your answer to 2 decimal places,
e.G., 32.16.) equity multiplier times

Answer 1

(a) Debt ratio = 0.82

Debt/ Assets = 0.82

Debt/(Debt + Equity) = 0.82

Debt = 0.82Debt + 0.82 Equity

0.18Debt = 0.82 Equity

Equity = 0.18Debt/0.82

Debt/Equity = Debt/(0.18Debt/0.82) = 4.5556

Debt/Equity = 0.82/0.18 =4.5556

Debt-Equity ratio = 4.56 times

(b) Equity Multiple = 1 + Debt-equity ratio

Equity multiplier = 1+4.56 = 5.56

Equity multiplier = 5.56 times