Answer:
The equity multiplier: 1.75
Return on equity: 12.075%
Net income: $98,411.25
Explanation:
The equity multiplier is calculated by using following formula:
The equity multiplier = Total asset/ Total equity
Shelton Company has a debt–equity ratio of .75 and total equity of $815,000:
Debt-to-equity ratio = Total debt (or liabilities)/Total equity
Total debt (or liabilities) = Debt-to-equity ratio x Total equity = 0.75 x $815,000 = $611,250
Basing on accounting equation:
Total asset = Total liabilities + Total equity = $611,250 + $815,000 = $1,426,250
The equity multiplier = $1,426,250/$815,000 = 1.75
The return on equity (ROE) is a profitability ratio that shows how much profit each dollar of equity generates. ROE is calculated by using following formula:
The return on equity (ROE) = Net income/Equity
Shelton Company has Return on assets (ROA) is 6.9 percent
ROA = Net Income/Total Assets
Net income = ROA x Total Assets = 6.9% x $1,426,250 = $98,411.25
The return on equity (ROE) = ($98,411.25/$815,000) x 100% = 12.075%
