Question

The Maurer Company has a long-term debt ratio of .70 and a current ratio of 1.10. Current liabilities are $950, sales are $5,170, profit margin is 9.40 percent, and ROE is 16.90 percent. What is the amount of the firm's net fixed assets?

Answer 1

Calculation of current assets
Current ratio	Current assets/Current liabilities
1.1	Current assets/$950
Current assets	1.1*950
Current assets	$1,045.00
Calculation of profit margin
Net income	Sales*Profit margin %
Net income	5170*9.40%
Net income	$485.98
Calculation of Equity using ROE
Equity	Net income/ROE
Equity	485.98/16.90%
Equity	$2,875.62
Calculation of long term debt using long term debt ratio
1/Long term debt ratio	1+(Total equity/Long term debt)
1/0.70	1+(2875.62/Long term debt)
1.428571429	1+(2875.62/Long term debt)
0.428571429	2875.62/Long term debt
Long term debt	2875.62/0.42
Long term debt	$6,709.78
Calculation of net fixed assets
Net fixed assets	Total assets - Current assets
Net fixed assets	10535.40-1045
Net fixed assets	$9,490.40
Thus, net fixed assets is $9,490.40.
Total assets	Total liabilities + Total equity
Total assets	(6709.78+950)+2875.62
Total assets	$10,535.40