Question

The Ashwood Company has a long-term debt ratio of 0.50 and a current ratio of 1.60. Current liabilities are $970, sales are $5,175, profit margin is 9.80 percent, and ROE is 17.60 percent. What is the amount of the firm's net fixed assets? Hint: This is another complex problem that requires a number of steps. Remember that CA + NFA = TA. So, if you find CA and TA, then you can solve for NFA.

Answer 1

$5,181.06

Explanation:

For computation of firm's net fixed assets first we need to follow some steps which is shown below:-

Current Ratio = Current Assets ÷ Current Liabilities

Current asset = Current ratio × Current liability

= 1.60 × $970

= $1,552

Profit Margin = Net income ÷ sales

Net income = Profit margin × sales

= 0.098 × $5,175

= 507.15

Long term debt ratio = Long term debt ÷ (Long term debt + Total equity)

0.50 = Long term debt ÷ (Long term debt + 2881.53)

Long term debt = 1440.765 ÷ (1 - 0.5)

= 2881.53

Total debt = Current liability + Long term debt

= 970 + 2881.53

= 3851.53

Total Asset = Total debt + Total equity

= 3851.53 + 2881.53

= $6733.06

Net fixed Asset = Total Asset - Current Asset

= $6,733.06 - $1,552

= $5,181.06