Excess capacity Walter industries had $5 billion in sales and $1.9 billion if fi

Question

Excess capacity Walter industries had $5 billion in sales and $1.9 billion if fixed assests. Currently, the company's fixed assets are operating at 95% of capacity. What level of sales could Walter Industries have obtained if it had boon operating.it fun capacity? Write out your answer completriy. For example, 25 billion should be entered as 25.000.000,000. Round your answer to the nearest cent. What is Walter's target fixed assets/bales ratio? Round your answer to two decimal places If Walter s vales increase 9%, how large of in Increase in fixed assets mil 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. Full capacity sales volume = $5 billion / 0.95 = $5263157895

a. Full capacity sales volume = $5 billion / 0.95 = $5263157895

b. Walter's Target fixed assets / Sales ratio = $$1.90 billion / $5 billion = 0.38 c. Increase sales = $5 billion * 1.09 = $5.45 billion Using the target fixed asset ratio we get = $5.45 billion * 0.38 = $2.071 billion as fixed assets requirement. Increase in fixed asset = $ 2.071 billion - $1.90 billion = $ 0.171 billion

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