Question

Check My Work Click here to read the eBook: The AFN Equation EXCESS CAPACITY Williamson Industries has $3 billion in sales and $2.8 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity. What level of sales could Williamson Industries have obtained if it had been operating at full capacity? Write out your answer completely. For example, 25 billion should be entered as 25,000,000,000. Round your answer to the nearest cent. $ 3157000000 What is Williamson's target fixed assets/sales ratio? Round your answer to two decimal places. 88.69 % If Williamson's sales increase 8%, how large of an increase in fixed assets will the company need to meet its target fixed assets/sales ratio? Write out your answer completely. For example, 25 billion should be entered as 25,000,000,000. Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.

Answer 1

1) If at 95% sales are $3,000,000,000, then at 100% capacity sales would be -

$3,000,000,000/ 0.95 = $3,157,894,736.84

2) Target fixed assets to sales ratio = (fixes assets / sales) × 100 = ($2,800,000,000/ $3,157,894,736.84) × 100 = 88.6666666 or 88.67%

3) The ratio same as above ( in 2).

New sales = $3,000,000,000 × 1.08 = $3,240,000,000

Target Fixed assets/ sales = 0.886666666

Or, New Fixed assets/ New sales = 0.886666666

Or, New Fixed assets = 0.886666666 x $3,240,000,000 = $2,872,799,997.84

Increase required = $2,872,799,997.84 - $2,800,000,000 = $72,799,997.84

(There can be a rounding off difference. If their is, try with 88.67%).