DuPont analysis) ​Garwryk, Inc., which is financed with debt and​ equity, presently has a debt ratio of  percent.  What is the​ firm's equity​ multiplier?  How is the equity multiplier related to the​ firm's use of debt financing​ (i.e., if the firm increased its use of debt financing would this increase or decrease its equity​ multiplier)?  Explain.  What is the​ firm's equity​ multiplier? The equity multiplier is given​ by:  equity multiplier = 1/1-DEBT RATIO    The equity multiplier is___.  ​(Round to two decimal​ places.) How is the equity multiplier related to the​ firm's use of debt financing​ (i.e., if the firm increased its use of debt financing would this increase or decrease its equity​ multiplier)?  Explain. ​(Select the best choice​ below.) A. If the company decreases its debt financing it will increase its debt​ ratio, therefore it will increase its equity multiplier. B.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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FIN320

(DuPont analysis) ​Garwryk, Inc., which is financed with debt and​ equity, presently has a debt ratio of  percent.  What is the​ firm's equity​ multiplier?  How is the equity multiplier related to the​ firm's use of debt financing​ (i.e., if the firm increased its use of debt financing would this increase or decrease its equity​ multiplier)?  Explain. 

What is the​ firm's equity​ multiplier?

The equity multiplier is given​ by:  equity multiplier = 1/1-DEBT RATIO   

The equity multiplier is___.  ​(Round to two decimal​ places.)

How is the equity multiplier related to the​ firm's use of debt financing​ (i.e., if the firm increased its use of debt financing would this increase or decrease its equity​ multiplier)?  Explain. ​(Select the best choice​ below.)

A.

If the company decreases its debt financing it will increase its debt​ ratio, therefore it will increase its equity multiplier.

B.

If the company increases its debt financing it will increase its debt​ ratio, therefore it will decrease its equity multiplier.

C.

If the company increases its debt financing it will decrease its debt​ ratio, therefore it will decrease its equity multiplier.

D.

If the company increases its debt financing it will increase its debt​ ratio, therefore it will increase its equity multiplier.

Last year the Rondoelea Products Company had $134 million in annual sales and a net profit margin of 9.6 percent. In addition, Rondoelea's average tax
(Capital structure analysis)
rate was 30 percent. If Rondoelea had $37 million of debt outstanding with an average interest rate of 10.7 percent, what is the firm's times interest earned ratio?
The times interest earned ratio is
times. (Round to one decimal place.)
Transcribed Image Text:Last year the Rondoelea Products Company had $134 million in annual sales and a net profit margin of 9.6 percent. In addition, Rondoelea's average tax (Capital structure analysis) rate was 30 percent. If Rondoelea had $37 million of debt outstanding with an average interest rate of 10.7 percent, what is the firm's times interest earned ratio? The times interest earned ratio is times. (Round to one decimal place.)
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