Question

Use the following information to answer this question. Windswept, Inc. 2017 Income Statement ($ in millions) Net sales $9,900 Cost of goods sold 7,650 Depreciation 390 Earnings before interest and taxes $1,860 Interest paid 88 Taxable income $1,772 Taxes 620 Net income $1,152 Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions) 2016 2017 2016 2017 Cash $220 $250 Accounts payable $1,540 $1,632 Accounts rec. 990 890 Long-term debt 1,010 1,293 Inventory 1,750 1,655 Common stock 3,240 2,970 Total $2,960 $2,795 Retained earnings 530 780 Net fixed assets 3,360 3,880 Total assets $6,320 $6,675 Required:What is the equity multiplier for 2017?

Answer 1

Answer:

1.78 times

Explanation:

The computation of the equity multiplier is shown below;

Equity multiplier is

= Total assets ÷ Total stockholders equity

= $6,675 ÷ $3,750

= 1.78 times

Working notes;

Calculation of total stockholders equity

Total stockholders equity = Common stock + Retained earnings

= $2,970 + $780

= $3,750