Question

6. Last year LaCroix Optical had $145 million of sales, and it had $40 million of fixed assets that were used at 75% of capacity. Use this information to solve the next two problems.

1. In millions, by how much could LaCroix Optical sales increase before it is required to increase its fixed assets?
   
   
2. LaCroix Optical was approached by the Department of Defense (DoD)because of their ability to manufacture the lens required for night vision goggles. LaCroix Optical is the last remaining firm domiciled in the United States that can manufacture the night vision lens, and subsequently the DoD designated the company as essential critical infrastructure. The company’s sales are expected to approximately double after signing a DoD contract. How much additional financing will LaCroix Optical need?     

Answer 1

a)

LaCroix Optical sales can be increased by $ 48.33 M without any increase to its existing fixed assets

last year sales is given. This sales is at 75% capacity. we need to find the sales at 100% capacity. now the unused 25% capacity will be the level of sales that can be increased without any increase to is FA.

b)   additional financing needed by LaCroix Optical   is $ 20M

the sales is expected to double. so we need to find the expected sales for the next year. The maximum sales possible from 100% capacity utilization of existing assets is already ascertained above. we need to find the difference between expected sales and maximum sales at 100% of existing Capacity. This will give the additional sales required- which will be possible only through additional capacity expansion.This value of additional assets will be the additional financing required

Additional FA or (finance) required   = (Additional Sales Required / Sales at 100% capacity X Fixed Assets )