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Alter Bridge Mfg., Inc., is currently operating at only 91 percent of fixed asset capacity. Current...

Alter Bridge Mfg., Inc., is currently operating at only 91 percent of fixed asset capacity. Current sales are $720085. Fixed assets are $427445 and sales are projected to grow to $1004605. How much in new fixed assets are required to support this growth in sales?

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Answer #1

Sales if operating at 100%= current sales / current operating capacity

             = 720085 /.91

               = 791302.20

capital intensity ratio = current fixed asset / sales at 100%

               = 427445/791302.2

                = .5402 or 54.02%

new fixed assets are required to support this growth in sales = [new sales * capital intensity ratio]- current fixed asset

   =[1004605 *.5402] - -427445

= 542687.62-427445

= 115242.62

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