To determine how much long-term debt the firm should have to support its assets, we first need to calculate the total assets and total liabilities of the firm.
-
Total Assets: This can be found by adding current assets to net fixed assets. \[ \text{Total Assets} = \text{Current Assets} + \text{Net Fixed Assets} \] \[ \text{Total Assets} = 1,198,159 + 3,925,832 = 5,123,991 \]
-
Total Liabilities: This includes current liabilities and long-term debt. We can express it as: \[ \text{Total Liabilities} = \text{Current Liabilities} + \text{Long-Term Debt} \]
-
Equity: We know the total equity of the firm is the difference between total assets and total liabilities: \[ \text{Total Assets} = \text{Total Liabilities} + \text{Equity} \] Rearranging gives us: \[ \text{Total Liabilities} = \text{Total Assets} - \text{Equity} \] Substituting the values we have: \[ \text{Total Liabilities} = 5,123,991 - 2,901,373 = 2,222,618 \]
-
Calculate Long-Term Debt: We can now substitute the total liabilities formula: \[ \text{Total Liabilities} = \text{Current Liabilities} + \text{Long-Term Debt} \] Rearranging gives us: \[ \text{Long-Term Debt} = \text{Total Liabilities} - \text{Current Liabilities} \] Substituting the current liabilities: \[ \text{Long-Term Debt} = 2,222,618 - 791,494 = 1,431,124 \]
So, the firm should have $1,431,124.00 in long-term debt to support its assets.
1 answer