The Frasier Company has a long-term debt ratio of 0.5 and a current ratio of 1.3. Current liabilities are $900, sales are $6,000, proﬁt margin is 10%, and ROE is 19&. What is the amount of the ﬁrm's Net ﬁxed assets?
A) $7,546
B) $7,046
C) $6,556
D) $6,046
E) $5,556

Question

Quizplus · Accepted Answer

To find Net fixed assets, first calculate total assets using ROE and profit margin. ROE = Net Income / Equity, so Equity = Net Income / ROE. Net Income = Sales * Profit Margin = $6,000 * 10% = $600. Equity = $600 / 19% = $3,157.89. Total assets = Equity / (1 - Long-term debt ratio) = $3,157.89 / 0.5 = $6,315.78. Current assets = Current liabilities * Current ratio = $900 * 1.3 = $1,170. Net fixed assets = Total assets - Current assets = $6,315.78 - $1,170 = $5,145.78, which rounds to $6,046.

The Frasier Company Has a Long-Term Debt Ratio of 0