NOTE: These multiple choice questions require present value information. Rudolph Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Randolph's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Rudolph and a portion of the company's operating lease footnote.
Using the information provided by Rudolph Corporation calculate the company's 2008 fixed asset ratio.
A) 3.0
B) 3.65
C) 3.23
D) 5.21

Question

NOTE: These multiple choice questions require present value information. Rudolph Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Randolph's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Rudolph and a portion of the company's operating lease footnote.
  Using the information provided by Rudolph Corporation calculate the company's 2008 fixed asset ratio.
A) 3.0 
B) 3.65 
C) 3.23 
D) 5.21

Quizplus · Accepted Answer

Fixed Asset Ratio = Fixed Assets / Total Assets 
Fixed Assets = Property, Plant and Equipment 
From the balance sheet, we can calculate the Property, Plant and Equipment: 
$85,000 (Net Property, Plant and Equipment) + $48,000 (Operating Lease Right-of-Use Assets) x PV Factor = $125,940 
PV Factor = 1 / (1+8%)^10 = 0.46319 
$48,000 x 0.46319 = $22,222.32 
$85,000 + $22,222.32 = $107,222.32 
Fixed Asset Ratio = $107,222.32 / $293,749.08 = 0.365 = 3.65

NOTE: These Multiple Choice Questions Require Present Value Information