The Maurer Company has a long-term debt ratio of .40 and a current ratio of 1.50. Current liabilities are $930, sales are $5,180, profit margin is 9.80 percent, and ROE is 17.20 percent. What is the amount of the firm's net fixed assets?

Net Fixed assets are $3523.99

Explanation:

To calculate the value of net fixed assets, we will use the basic accounting equation. The basic accounting equation is,

Assets = Liabilities + Equity

We will first calculate the value of equity.

We know that the profit margin is 9.8% which means a net profit of,

Net Profit = 0.098 * 5180  = $507.64

This net profit is equal to 17.2% of ROE, where ROE is net profit expressed as a percentage of total equity. Thus, total equity is,

ROE = Net Profit / Total equity

0.172 = 507.64 / Total equity

Total equity = 507.64 / 0.172    = $2951.395349

A debt ratio of 40% means that debt is 40% of total assets while equity is the remaining 60%. If the 60% of total assets is $2951.395349 then the total value of assets or 100% will be,

Total assets = 2951.395349 * 100/60

Total assets = $4918.99

A current ratio of 1.5 means that the current assets are 1.5 times of current liabilities. Thus current assets are = 1.5 * 930 = 1395

Net Fixed assets = Total assets - current assets

Net Fixed assets = 4918.99 - 1395  =  3523.99

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