If Power-On Inc. has a total asset turnover of 1.8, a fixed asset turnover of 3.2, a debt ratio of 0.5, and a total debt of $200,000, what would fixed assets be?
A) $56,250
B) $711,111
C) $225,000
D) $62,250

Question

Quizplus · Accepted Answer

Fixed asset turnover = sales / fixed assets
1.8 = sales / total assets

Therefore, sales / fixed assets = 1.8 / (total assets / fixed assets) 
Sales / fixed assets = 1.8 / (1/3.2) = 5.76

Total debt = debt ratio * total assets 
$200,000 = 0.5 * total assets 
Total assets = $400,000

Fixed assets = total assets * (1 - total asset turnover / fixed asset turnover)
Fixed assets = $400,000 * (1 - 1.8 / 3.2) = $400,000 * 0.4375 = $175,000

Therefore, the fixed assets would be $225,000 (C).