The Hooya Company has a long-term debt ratio (i.e., the ratio of long-term debt
ID: 2723583 • Letter: T
Question
The Hooya Company has a long-term debt ratio (i.e., the ratio of long-term debt to long-term debt plus equity) of .38 and a current ratio of 1.32. Current liabilities are $2,420, sales are $10,540, profit margin is 12 percent, and ROE is 17 percent. Required: What is the amount of the firm’s current assets? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current assets $ What is the amount of the firm’s net income? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Net income $ What is the amount of the firm’s total equity? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Total equity $ What is the amount of the firm’s long-term debt? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Long-term debt $ What is the amount of the firm’s total debt? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Total debt $ What is the amount of the firm’s total assets? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Total assets $ What is the amount of the firm’s net fixed assets? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Net fixed assets $
Explanation / Answer
A ) to calculate the $ value current assets we have use the financial ratio of current ratio
The formula for current ratio = current assets / current liabilities
Or current assets = current ratio X current liabilities
Given
Current liabilities = $2,420
Current ratio = 1.32
Putting values in formula
Current asset = 1.32 x 2,420
Current asset $ 3,194.40
B ) to calculate the net profit in $ value we will use the following formula
Net profit = sales x gross profit percentage
Given in the problem
Sales = $10,540
Gross profit % = 12% or .12
Putting values in the formula
Net profit = $10,540 x 0.12
Net profit = $1264.80
To calculate the firms total equity we will use the financial ratio of ROE
The formula of ROE = net income / total equity
Or total equity = net income / Roe
Where the
Net income = $1264.80
ROE = 17% or 0.17
Putting values in formula
Total equity = $1264.80 / 0.17
Total equity = $ 7,440
D To calculate the long term debt we will use the financial ratio is long term debt ratio
The formula is long term debt ratio = long term debt / long term debt + equity
In this equation long term debt ratio + equity ratio is 1
Equity ratio = 1 – 0.38
Where given
Equity = $7,440
Long term debt ratio = 0.38
In this equation long term debt ratio + equity ratio is 1
Equity ratio = 1 – 0.38
Equity ratio = 0.62
If equity ratio 0.62 = $7,440
Then long term debt is = (7,440 / 0.62) x 0.38
The total long term debt = $4,560
E the firms total liabilities will be firms total assets , we have calculated firm total liabilities
Total liabilities = total equity + long term debt + current liabilities
Total liabilities = $ 7440 + $ 4560 + $2420
Total liabilities = $14.420 which is total assets
f) to calculate net fixed assets
total assets = current assets + fixed assets
or fixed assets = total assets – current assets
fixed assets = $14420 -$ 3,194.40
fixed asset = $11225.6
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