Final answer:
The student's question involves calculating net fixed assets by using various financial ratios and data provided for the Mikado Company such as long-term debt ratio, current ratio, current liabilities, sales, profit margin, and ROE.
Step-by-step explanation:
Calculating the Firm’s Net Fixed Assets
The student is asking how to find out the amount of the firm's net fixed assets given a set of financial ratios and data. To find the firm's net fixed assets, we must first calculate the company's total assets and then subtract current assets.
The Mikado Company has a long-term debt to equity ratio of 0.37, which means that long-term debt is 37% of the value of long-term debt plus equity. The company also has a current ratio of 1.5 and current liabilities of $930.
Using the profit margin of 9.6 percent and sales of $6,350, we can calculate net income:
Net Income = Sales x Profit Margin = $6,350 x 0.096 = $609.60.
Next, using the ROE (Return on Equity) of 19.8 percent, we can calculate the total equity:
Equity = Net Income / ROE = $609.60 / 0.198 = $3,077.78.
From the long-term debt to equity ratio we have:
Long-Term Debt/(Long-Term Debt + Equity) = 0.37,
which implies Long-Term Debt = 0.37 x (Long-Term Debt + Equity).
After calculating long-term debt and adding current liabilities, we obtain total liabilities. The sum of total liabilities and equity provides total assets:
Total Assets = Total Liabilities + Equity
To find current assets, we use the current ratio formula:
Current Ratio = Current Assets / Current Liabilities,
which gives us:
Current Assets = Current Ratio x Current Liabilities = 1.5 x $930.
We find net fixed assets by subtracting current assets from total assets:
Net Fixed Assets = Total Assets - Current Assets.