Question

The Maurer Company has a long-term debt ratio of .35 and a current ratio of 1.50. Current liabilities are $910, sales are $6,330, profit margin is 9.2 percent, and ROE is 19.6 percent. What is the amount of the firm's net fixed assets? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

To find the Maurer Company's net fixed assets, financial ratios and figures are used to calculate net income, equity, total assets, current assets, and then subtract current assets from total assets.

Step-by-step explanation:

The student is asking to calculate the net fixed assets of the Maurer Company using the given financial ratios and figures. To find the net fixed assets, we can use the long-term debt ratio and current ratio formulas in conjunction with the profit margin and ROE to derive the required information. The profit margin will be useful in determining the net income, which will then help us infer the equity, needed to determine the firm's total assets and thereby the net fixed assets. The process involves several calculations:

1. Calculate the net income using the profit margin: Net Income = Profit Margin × Sales.
2. Derive equity using the formula for ROE: Equity = Net Income / ROE.
3. Find the total assets using the equity and the long-term debt ratio: Total Assets = Equity / (1 - Long-Term Debt Ratio).
4. Calculate the current assets using the current ratio: Current Assets = Current Liabilities × Current Ratio.
5. Finally, determine the net fixed assets: Net Fixed Assets = Total Assets - Current Assets.

Following these steps, the firm's net fixed assets can be accurately calculated.