Please answer fully. Excess capacity Walter Industries has $7 billion in sales a
ID: 2714224 • Letter: P
Question
Please answer fully.
Excess capacity
Walter Industries has $7 billion in sales and $2.8 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.
a. 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.
$______________
b. What is Walter's target fixed assets/Sales ratio? Round your answer to two decimal places.
______________%
c. If Walter's sales increase 11%, 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. Do not round intermediate calculations.
$________________
Explanation / Answer
a)
95% capacity can have sales of $7 billion, then 100% capacity will have sales of
Sales = 100 * 7 / 95 = 7,368,421,053
b)
Target fixed asset / Sales ratio = 2,800,000,000 / 7,368,421,053 = 38.00%
c)
If walters sales increase by 7%, its new sales = 7 * (1+11%) = $7.77 billion
If 7,368,421,053 sales need $2.5 billion of assets, then 7,770,000,000 would need how much assets
Assets = 7,770,000,000 * 2,500,000,000 / 7,368,421,053 = 2,636,250,000