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 .53 and a
current ratio of 1.42. Current liabilities are $2,470, sales are
$10,690, profit margin is 10 percent, and ROE is 15 percent.

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

Net fixed assets $

Answer #1

Current ratio = Current assets / Current liabilities | |

1.42 = Current assets / 2470 | |

Current assets = 1.42 * 2470 | 3507.4 |

Net income = Sales * Profit margin = 10690 * 10% | 1069 |

ROE = Net income / Total Equity | |

15% = 1069 / Equity | |

Equity = 1069 / 15% | 7126.67 |

Long term debt ratio = Long term debt / ( Long term debt + Equity ) | |

0.53 = Long term debt / ( Long term debt + 7126.67 ) | |

Long term debt = 0.53 * ( Long term debt + 7126.67 ) | |

Long term debt = 0.53Long term debt + 3777.14 | |

Long term debt - 0.53Long term debt = 3777.14 | |

0.47Long term debt = 3777.14 | |

Long term debt = 3777.14 / 0.47 | 8036.47 |

Long term debt + Equity + Current liabilities = Current assets + Net fixed assets | |

8036.47 + 7126.67 + 2470 = 3507.4 + Net fixed assets | |

Net fixed assets = 8036.47 + 7126.67 + 2470 - 3507.4 |
14125.74 |

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Profit Margin and Debt Ratio
Assume you are given the following relationships for the Haslam
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1.3
Return on assets (ROA)
4%
Return on equity (ROE)
5%
Calculate Haslam's profit margin and liabilities-to-assets
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Profit margin: %
Liabilities-to-assets ratio: %
Suppose half of its liabilities are in the form of debt.
Calculate the debt-to-assets ratio. Do not round intermediate
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%

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