Question

The Maurer Company has a long-term debt ratio of .60 and a current ratio of 1.20. Current liabilities are $940, sales are $5,120, profit margin is 9.30 percent, and ROE is 16.90 percent. What is the amount of the firm's net fixed assets?

Answer 1

Answer:

The amount of the firm's net fixed assets is $4,321

Explanation:

Profit margin = Net income/ Sales

Net income = Profit margin x Sales = 9.30% x $5,120 = $476.16

ROE = Net Income/Equity

Equity = Net Income/ROE = $476.16/16.90% = $2,818

Long-term debt ratio = Long-term debt/Equity

Long-term debt = Long-term debt ratio x Equity = 0.6 x $2,818 = $1,691

Basing on accounting equation:

Total asset =Current Liabilities + Long-term debt + Equity = $940 + $1,691 + $2,818 = $5,449

Current ratio = Current asset/Current Liabilities

Current asset = Current ratio x Current Liabilities = 1.2 x $940 = $1,128

Fixed assets = Total asset - Current asset = $5,449 - $1,128 = $4,321