This problem is part of the minicase on page 117-118. The problem in #3. I would

Question

This problem is part of the minicase on page 117-118. The problem in #3. I would like to know how to find the EFN when there has been an increase in fixed asset.

Question 3
Most assets can be increased as a percentage of sales. For instance cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, to buy part of a plant. In this case, a company has a staircase or lumpy fixed cost structure. Assume S&S Air is currently producing at 100 percent capacity. As a result to increase production the company must set up an entirely new line at a cost of $5,000,000. Calculate the new EFN with this assumption.

Explanation / Answer

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