Homework SourseThe Arkham Company has a ratio of longterm debt to longterm
The Arkham Company has a ratio of long-term debt to long-term debt plus equity of .43 and a current ratio of 1.5. Current liabilities are $990, sales are $6,410, profit margin is 9.3 percent, and ROE is 20.4 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.)
Net fixed assets =
neither of these are the answer 5362.74, 3,683.75, 5378.53
Solution
Fixed Assets $ 4,631.68
Working:
| Calculation of fixed assets with given details is series of calculation which are linked with each other. | |||||||||
| So, fixed assets is calculated as under: | |||||||||
| Current Assets | = | Current Liabilities x Current ratio | |||||||
| = | $ 990 | x | 1.5 | ||||||
| = | $ 1,485 | ||||||||
| Net Income | = | Sales x Profit Margin | |||||||
| = | $ 6,410 | x | 9.3% | ||||||
| = | $ 596.13 | ||||||||
| Equity | = | Net Income / ROE | |||||||
| = | $ 596.13 | / | 20.40% | ||||||
| = | $ 2,922.21 | ||||||||
| Suppose long term debt is \"x\" | |||||||||
| and, | |||||||||
| D | Long term debt | ||||||||
| E | Equity | ||||||||
| Now, | |||||||||
| D/(D+E) | = | 0.43 | |||||||
| D/(D+2922.21) | = | 0.43 | |||||||
| D | = | 0.43D+1256.55 | |||||||
| 0.57D | = | 1256.55 | |||||||
| D | = | 2,204.47 | |||||||
| So, | |||||||||
| Current Laibilities | 990 | ||||||||
| Long term liabilities | 2,204.47 | ||||||||
| Total Debt | 3,194.47 | ||||||||
| As per balance sheet equiation, | |||||||||
| Total Assets | = | Total Debt + Total Equity | |||||||
| = | 3,194.47 | + | 2,922.21 | ||||||
| = | 6,116.68 | ||||||||
| Fixed Assets | = | Total Assets | - | Current Assets | |||||
| = | 6,116.68 | - | $ 1,485 | ||||||
| = | 4,631.68 | ||||||||
