The Le Bleu Company has a ratio of long-term debt to long-term debt plus equity
ID: 2745150 • Letter: T
Question
The Le Bleu Company has a ratio of long-term debt to long-term debt plus equity of .37 and a current ratio of 1.50. Current liabilities are $930, sales are $6,350, profit margin is 9.6 percent, and ROE is 19.8 percent. What is the amount of the firm’s net fixed assets?
The Le Bleu Company has a ratio of long-term debt to long-term debt plus equity of .37 and a current ratio of 1.50. Current liabilities are $930, sales are $6,350, profit margin is 9.6 percent, and ROE is 19.8 percent. What is the amount of the firm’s net fixed assets?
Explanation / Answer
Sales = 6350
Profit margin = profit / sales = 9.6%
=> Profit/6350 = .096
=> profit = 609.6
ROE = profit/equity = 609.6/equity = 19.8%
equity = 3078.79
debt/(debt + equity) = 0.37
=> debt = 0.37*debt + 0.37*3078.79
=> debt = 1808.18
total liabilities + equity = current liabilites + debt + equity = 930 + 1808.18 + 3078.79 = 5816.97
Current Asset + fixed assets = total liabilities
current assets = current ratio * current liabilties = 1.5*930 = 1395
1395 + fixed assets = 5816.97
fixed assets = 4421.97
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