Question

1. A business has $4,000 current liability and a total assets equal $30,000. What is the...

1. A business has $4,000 current liability and a total assets equal $30,000. What is the equity for the firm if long-term debt is $7,500?

2. Zena corp. has $1,000 current asset, $2,000 fixed asset, $800 current liability, $1,000 long-term debt. What is its current ratio?

3. Dola company has sales of $26,000, depreciation of $2,000, interest expense of $800, cost of goods sold of $15,000, other costs of $5,000, and a tax rate of 34 percent. What is Dola company's profit margin?

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Answer #1

Case 1: Computation of the equity of the firm

We know that Total Assets = Total liabilities

Total Assets = Equity + Outside liabilities*

$ 30000 = Equity + $ 11500

Equity = $ 30000-$ 11500

= $ 18500

* Outside liabilities = long term debt + current liabilities

= $ 7500+$ 4000

= $ 11500

Case 2: Computation of current ratio

We know that Current ratio = Current Assets/ Current liabilities

= $ 1000/$ 800

= 1.25

Case 3: Computation of profit margin

Particulars Amount

A. Sales $ 26000

B.COGS $ 15000

C.Gross profit ( A-B) $ 11000

D.Other cost $ 5000

E.Depreciation $ 2000

F.Interest $ 800

G.Profit before tax $ 3200

   H.Tax @ 34% $ 1088

I.Profit after tax( G-H) $ 2112

  

Gross profit margin = GP/Sales*100

= $ 11000/$ 26000*100

= 42.30%

Net profit margin = NP/Sales *100

= $ 2112/$26000*100

= 8.12%

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