You Are Considering a Stock Investment in One of Two

question 76

Multiple Choice

You are considering a stock investment in one of two firms (A and B) , both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the equity multiplier for the two firms.

• A) Firm A: 15 times; Firm B: 1.00 times
• B) Firm A: 10 times; Firm B: 1.11 times
• C) Firm A: 10 times; Firm B: 9.99 times
• D) Firm A: 20 times; Firm B: 1.11 times

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Definitions:

Temporal Bone

A bone situated at the side and base of the skull, which houses structures of the ear and is part of the cranium.

Parietal Bone

One of the two bones forming the sides and roof of the cranium, part of the human skull.

Occipital Bone

A cranial bone located at the lower back of the skull, playing a key role in protecting the brain and supporting the head.

Frontal Bone

The bone that forms the front part of the skull and the upper part of the eye sockets.