Question

The Maurer Company has a long-term debt ratio of .70 and a current ratio of 1.50. Current liabilities are $1,000, sales are $5,135, profit margin is 9.50 percent, and ROE is 19.10 percent. What is the amount of the firm's net fixed assets?

Answer 1

Current Ratio = Current Assets / Current Liabilities
1.50 = Current Assets / $ 1000
Current Assets = $ 1500

Profit Margin = ( Net Income / Sales) * 100
9.50 = (Net Income / $ 5135 ) * 100
Net Income = 9.5 * $ 5135 / 100
Net Income = $ 487.83

Return on Equity (ROE) = ( Net Income / Total Equity) * 100
19.10 = ($487.83 / Total Equity) * 100
Total Equity = $ 48783 / 19.10
Total Equity = $ 2554.06

Long Term Debt Ratio = Long Term Debt / (Total Long Term Debt + Total Equity)
0.70 = Long Term Debt / (Long Term Debt + $ 2554.06)
$ 1787.84 + 0.70 * Long Term Debt = Long Term Debt
$ 1787.84 = 0.30 * Long Term Debt
Long Term Debt = $ 5959.47

Total Liabilities and Equity = $ 1000 + $ 5959.47 + $ 2554.06
Total Liabilities and Equity = $ 9513.53

Total Assets = Total Liabilities and Equity
or Current Assets + Net Fixed Assets = Total Liabilities and Equity
$ 1500 + Net Fixed Assets = $ 9513.53
Net Fixed Assets = $ 8013.53