Garwryk, Inc., which is financed with debt and$$ equity, presently has a debt ratio of $76$ percent. What is the$$ 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.

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Part $1$

What is the$$ firm's equity$$ multiplier?

The equity multiplier is given$$ by:

Equity Multiplier equals StartFraction $1$ Over $1$ minus Debt Ratio EndFraction

The equity multiplier is

$$

$4\mathrm{.}17.($Round to two decimal$$ places.$)$

Part $2$

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 increases its debt financing it will increase its debt$$ ratio, therefore it will decrease its equity multiplier.

B$.$

If the company decreases its debt financing it will increase its debt$$ ratio, therefore it will increase 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.