Using the Du Pont Identity Method, Calculate the Equity Multiplier

question 134

Multiple Choice

Using the Du Pont Identity Method, calculate the equity multiplier given the following information. Profit margin 19%; total asset turnover 1.5; return on equity 37.05%.

• A) 1.2
• B) 1.3
• C) 1.4
• D) 1.5
• E) 1.6

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Definitions:

Capital Structure

The mix of different forms of capital used by a firm to finance its overall operations and growth, including debt, equity, and any hybrid securities.

Capital Components

The mix of debt, equity, and other financial instruments used by a company to fund its operations and growth.

Overall Cost Of Capital

The weighted average of the costs of all sources of financing used by a firm, including debt and equity.

Invested Funds

Money placed into vehicles like stocks, bonds, or mutual funds with the expectation of earning a return.