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

First we will calculate net income as per below:

Profit margin = Net income / Sales

Putting the values in the above formula, we get,

9.5% = Net income / $5135

Net income = $5135 * 9.5% = $487.825

Next, we will calculate equity as per below:

Return on equity (ROE) = Net income / Equity

Putting the values in the above formula, we get,

19.10% = $487.825 / Equity

Equity = $487.825 / 19.10% = $2554.0576

Next we will calculate current assets as per below:

Current ratio = Current assets / Current liabilities

putting the values in the above formula, we get,

1.5 = Current assets / $1000

Current assets = $1000 * 1.5 = $1500

Now,

Long term debt ratio = Long term debt / Total assets

0.7 = Long term debt / Total assets

Long term debt = Total assets * 0.7

Next, we will calculate total assets as per below:

Total assets = Equity + Long term debt + Current liabilities

Putting the values in the above equation, we get,

Total assets = $2554.0576 + (Total assets * 0.7) + $1000

Total assets - Total assets * 0.7 = $3554.0576

0.3 * Total assets = $3554.0576

Total assets = $3554.-576 / 0.3 = $11846.8586

Now, we will calculate net fixed assets as per below:

Net fixed assets = Total assets - Current assets

Putting the values in the above formula, we get.

Net fixed assets = $11846.8586 - $1500 = $10346.8586