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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

EXCESS CAPACITY Williamson Industries has $7 billion in sales and $1,944 billion in fixed assets. Currently, the company’s fixed assets are operating at 90% of capacity.

  1. a. What level of sales could Williamsons Industries have obtained if it had been operating at full capacity?
  2. b. What is Williamson's target fixed assets/sales ratio?
  3. c. If Williamson's sales increase 15%, how large of an increase in fixed assets will the company need to meet its target fixed assets / sales ratio?

a.

Summary Introduction

To compute: The level of sales of W industries at full capacity.

Introduction:

Excess Capacity Adjustment:

A company might not always achieve its fullest capacity. At this point, an adjustment is required to match existing asset forecast to the firm’s optimum level, called as excess capacity adjustment.

Explanation

Given information:

Sales are $7 billion.

Current capacity is 90%

Formula to calculate the level of sales at full capacity is,

Fullcapacitysales=Actualsales(Percentageofcurrentcapacity)

Substitute $7 billion for sales and percentage of current capacity is 90%

b.

Summary Introduction

To compute: Fixed asset sales ratio of W industries.

c.

Summary Introduction

To compute: The amount of fixed asset when sales increase by 15%.

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