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Equity Multiplier and Debt Ratio

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A firm has an equity multiplier of 2.4, and its assets are financed with some combinations of long-term debt and common equity. What would be the debt ratio?

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Solution Summary

This solution provides calculations for finding debt ratio.

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Equity Multiplier= Total Assets/Shareholder equity
Total Assets are 2.4 times of Equity
Hence Debt +Equity= Assets
Debt +Equity=2.4 Shareholder equity
Debt =1.4 Equity

Debt Ratio= Total Debt /Total ...

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