Question

2. The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity?

3. Gladstone Pavers has a long-term debt ratio of 0.6 and a current ratio of 1.3. Current liabilities are $700, sales are $4,440, the profit margin is 9.5 percent, and the return on equity is 19.5 percent. How much does the firm have in net fixed assets?

Answer 1

2.

Profit Margin = Net Profit / Revenue ( sales )

Profit Margin = 11% , 0.11

0.11 = Net Profit / 29,000,000

3,190,000 = Net Profit

Return on Equity (ROE) = Net Profit / Shareholders Equity

Shareholders Equity = Total Assets - Total Debt (Liabilities) = 43,000,000 - 13,000,000 = 30,000,000

ROE = 3,190,000 / 30,000,000 = 0.106333 = 10.633 %

3.

current ratio = current asset / current liabilties

1.3 = current asset / 700

910 = current asset

profit margin = net profit/ sales (revenue) , profit margin = 0.095 (9.5%0

0.095 = net profit / 4440

0.095 * 4440 = net profit

421.8 = net profit

Return on Equity (ROE) = Net Profit / Shareholders Equity

0.195 = 421.8 / Equity

Equity = 421.8 / 0.195 = 2163.0769

Long term debt ratio = Long term Debt / Total Asset

0.6 = Long Term Debt / Total Asset

0.6 *Total Asset = Long Term Debt

Total Asset - Total Liabilities = Shareholders equity

Total Assets - ( Current Liabilities + Long term debt) = Shareholders Equity

Total Asset - ( 700 + 0.6 Total Asset) = 2163.0769

(1Total Asset - 0.6 Total Asset) - 700 = 2163.0769

0.4 Total Asset = 2163.0769 + 700

0.4 Total Asset = 2863.0769

Total Asset = 2863.0769 / 0.4

Total Asset = 7157.69225

Net Fixed Asset = Total Asset - Current Asset ( Since there is no depreciation mentioned in the case)

Net Fixed Asset = 7157.69225 - 910 = 6247.69225 (ANSWER)