A firm's ROE is equal to 9% and its ROA is equal to 6%. The firm finances only with short-term debt, long-term debt, and common equity, so assets equal total invested capital. The firm's total debt to total capital ratio must be 50%.
Answer the following statement true (T) or false (F)
False
Rationale: Equity multiplier = ROE/ROA = 9%/6% = 1.5E/A = 1/1.5 = 0.6667D/A = 1 - 0.6667 = 0.3333?Since assets = Total invested capital, Debt/Total invested capital = 33.33%. Therefore, the statement is false.
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