Walter Industries has $6 billion in sales and $1.1 billion in fixed assets. Curr

Question

Walter Industries has $6 billion in sales and $1.1 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.

Walter Industries has $6 billion in sales and $1.1 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.

1. What level of sales could Walter 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.
   $
   
2. What is Walter's target fixed assets/Sales ratio? Round your answer to two decimal places.
   %
   
3. If Walter's sales increase 14%, 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.
   $

Explanation / Answer

x(0.90) = $5 billion, where x equal sales if operating at full capacity
Divide $5 billion by 0.90 to obtain the answer = $5,555,555,555.56

b) Fixed assets/Sales = $1.7/5.0 = 0.34

c) Sales increase by 12% = $5.0 billion (1.12) = $5.6 billion

x/5.6 = 0.34
Solve for x = 0.34*5.6 = $1.904B

The question, however, asks for how large of an increase you will need in fixed assets. Currently you have $1.7 billion, so find the difference

$1.904 - $1.7 = $0.204B, or $204M increase in fixed assets

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