Asked by
Tyler Tully
on Nov 08, 2024
Verified
In words, what does an equity multiplier of 2 mean?
A) Each dollar in assets the firm owns is supported by $2 in equity.
B) Each dollar in equity the firm has supports $2 in assets.
C) Each dollar in assets the firm owns is supported by $4 in equity.
D) Each dollar in equity the firm has supports fifty cents in assets.
E) Each dollar in assets the firm owns is supported by $2 in debt.
Equity Multiplier
A financial ratio that measures the amount of a company’s assets financed by its shareholders' equity, indicating leverage.
Assets Support
Refers to the financial or operational support provided to maintain or enhance the value of a company's assets.
Dollar in Equity
Dollar in equity represents the value of an investor's ownership interest in a company, typically expressed in terms of the dollar amount of shares held.
- Master the correlations between profitability, asset management, and leverage ratios.
- Acquire an understanding of the effects of financing choices on financial leverage and solvency.
Verified Answer
FT
Learning Objectives
- Master the correlations between profitability, asset management, and leverage ratios.
- Acquire an understanding of the effects of financing choices on financial leverage and solvency.