Answered: If Alex Corporation takes out a bank…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 12P

See similar textbooks

Related questions

Question

If Alex Corporation takes out a bank loan to purchase a machine used in production and

everything else stays the same, its equity multiplier will ________, and its ROE will

________.

A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Expert Solution

Step 1

Equity Multiplier:

It represents the portion of the firm's assets financed by the shareholder's equity. Hence, it is computed by dividing total assets by total shareholders equity.

A low equity multiplier implies the firm has low leverage and high equity multiplier implies the firm has high leverage.

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions