Question

The Smathers Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt plus equity) of .43 and a current ratio of 1.27. Current liabilities are $2,395, sales are $10,465, profit margin is 11 percent, and ROE is 16 percent.

What is the amount of the firm’s long-term debt? (Do not round intermediate calculations and your answer to 2 decimal places, e.g., 32.16.)

What is the amount of the firm’s total debt? (Do not round intermediate calculations and your answer to 2 decimal places, e.g., 32.16.)

What is the amount of the firm’s total assets? (Do not round intermediate calculations and your answer to 2 decimal places, e.g., 32.16.)

What is the amount of the firm’s net fixed assets? (Do not round intermediate calculations and your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Current liabilities= $2395
Sales= $10465
Long term debt ratio= 0.43
current ratio= 1.27
Profit margin= 11%
Return on equity=16%
Net profit= sales* profit margin
Net profit= 10465*0.11= $1151.15
Equity= Net profit/return on equity
Equity= 1151.15/0.16=7194.69
Current liabilities= Current asset/ current ratio
Current liabilities= 2395/1.27=1885.83
Calculation of long term debt:
Long term debt= (long term debt+equity)*long term debt ratio
Long term debt= (long term debt+7194.69)*0.43
long term debt= 0.43*long term debt+3093.42
0.57*long term debt= 3093.42
long term debt= 3093.42/0.57= 5427.05
Long term debt= $5427.05
Calculation of total debt:
Total debt= long term debt+current liabilities
Total debt= 5427.05+1885.83= 7312.88
Total debt= $7312.88
Calculation of total assets:
Total assets= Total debt+equity
Total assets= 7312.88+7194.69= 14507.57
Total assets are $14507.57
Calculation of net fixed assets:
Net fixed assets= Total assets- current assets
Net fixed assets= 14507.57-2395= $12112.57
Net fixed assets= $12112.57