Question

Williamson Industries has $7 billion in sales and $1.941 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity.

1. What level of sales could Williamson 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 Williamson's target fixed assets/sales ratio? Do not round intermediate calculations. Round your answer to two decimal places.
     %
4. 
   
5. If Williamson's sales increase 15%, 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. Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

Answer 1

1). Full Capacity Sales = Sales / Current Operating Capacity

= $7,000,000,000 / 0.90 = $7,777,777,777.78

2). Tgt Fixed Asset / Sales Ratio = Fixed Assets / Full Capacity Sales

= $1,941,000,000 / $7,777,777,777.78 = 0.2496, or 24.96%

3). New Sales = Sales * (1 + g) = $7,000,000,000 * (1 + 0.15) = $8,050,000,000

Change in Fixed Assets needed = Tgt Fixed Asset / Sales Ratio * (New Sales - Old Sales)

= 0.2496 * ($8,050,000,000 - $7,777,777,777.78)

= 0.2496 * $272,222,222.22

= $67,935,000