Excess capacity Walter Industries has $8 billion in sales and $2.9 billion in fi

Question

Excess capacity

Walter Industries has $8 billion in sales and $2.9 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.

Excess capacity

Walter Industries has $8 billion in sales and $2.9 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. 
   
3. What is Walter's target fixed assets/Sales ratio? Round your answer to two decimal places.
   %
4. 
   
5. If Walter's sales increase 13%, 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

1]AT 95% CAPACITY

SALES/FIXED ASSETS

=8/(2.9*0.95)

=2.9

AT 100% CAPACITY SALES = 2.9*2.9

=8.41BILLION OR 8410000000

2]WALTERS TARGET FIXED ASSETS/SALES RATIO = 2.9/8.41 = 0.34

3]NEW SALES= 8(1.13)

=9.04

FIXED ASSETS/9.04 = 0.34

FIXED ASSETS = 3.0736 BILLION

INCREASE IN FIXED ASSET = 3.0736

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