Answered: Water and Power Co. (W&P) currently has…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 6P

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Question

Water and Power Co. (W&P) currently has $575,000 in total assets and sales of $1,400,000. Half of W&P’s total assets come from net fixed assets, and the rest are current assets. The firm expects sales to grow by 22% in the next year. According to the AFN equation, the amount of additional assets required to support this level of sales is

. (Note: Round your answer to the nearest whole number.)

W&P was using its fixed assets at only 95% of capacity last year. How much sales could the firm have supported last year with its current level of fixed assets? (Note: Round your answer to the nearest whole number.)

$1,547,368

$1,768,421

$1,473,684

$1,694,737

When you consider that W&P’s fixed assets were being underused, its target fixed assets to sales ratio should be

%. (Note: Round your answer to two decimal places.)

When you consider that W&P’s fixed assets were being underused, how much fixed assets must W&P raise to support its expected sales for next year? (Note: Round your answer to the nearest whole number.)

$45,713

$52,570

$54,856

$47,999

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