Walter Industries has $4 billion in sales and $1.6 billion in fixed assets. Curr

Question

Walter Industries has $4 billion in sales and $1.6 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity.

1. What level of sales could Walter Industries have obtained if it had been operating at full capacity? Round your answer to the nearest cent.

$___________________

2. What is Walter's target fixed assets/Sales ratio? Round your answer to two decimal places.

36%

3. If Walter's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Round your answer to the nearest cent.

$______________

Explanation / Answer

1) 0.9*$1.6 billion fixed asset gives $4 billion sales

 $1.6 billion fixed asset will give $4/0.9 = 4.44 billion sales

2)  fixed assets/Sales ratio = 1.6/4 = 0.4

3)x/(1.12*4) = 0.4 => x = 1.792  

therfore increase in fixed assets required= 1.792 - 1.6 = 0.192 billions

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