The Ashwood Company has a long-term debt ratio of 0.30 and a current ratio of 1.40. Current liabilities are $990,

The Ashwood Company has a long-term debt ratio of 0.30 and a current ratio of 1.40. Current liabilities are $990, sales are $5,140, profit margin is 9.50 percent, and ROE is 17.70 percent. What is the amount of the firm’s net fixed assets?

$3,545.08
$3,448.45
$4,931.08
$2,172.32
$1,182.32

The solution to this problem requires a number of steps. First, remember that CA + NFA = TA. So, if we find the CA and the TA, we can solve for NFA. Using the numbers given for the current ratio and the current liabilities, we solve for CA:

CR = CA / CL
CA = CR(CL) = 1.40($990) = $1,386

To find the total assets, we must first find the total debt and equity from the information given. So, we find the sales using the profit margin:

PM = NI / Sales
NI = PM(Sales) = 0.095($5,140) = $488.30

We now use the net income figure as an input into ROE to find the total equity:
ROE = NI / TE
TE = NI / ROE = $488.30 / 0.177 = $2,758.76

Next, we need to find the long-term debt. The long-term debt ratio is:
Long-term debt ratio = 0.30 = LTD / (LTD + TE)

Inverting both sides gives:
1 / 0.30 = (LTD + TE) / LTD = 1 + (TE / LTD)

Substituting the total equity into the equation and solving for long-term debt gives the following:
3.3333 = 1 + ($2,758.76 / LTD)
LTD = $2,758.76 / 2.3333 = $1,182.32

Now, we can find the total debt of the company:
TD = CL + LTD = $990 + 1,182.32 = $2,172.32

And, with the total debt, we can find the TD&E, which is equal to TA:
TA = TD + TE = $2,172.32 + 2,758.76 = $4,931.08

And finally, we are ready to solve the balance sheet identity as:
NFA = TA – CA = $4,931.08 – 1,386.00 = $3,545.08