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Albion Corporation has $550,000 in net fixed assets and is currently operating at 90% capacity. The...

Albion Corporation has $550,000 in net fixed assets and is currently operating at 90% capacity. The firm's sales are $1,210,000 and they are forecasted to grow by 15% next year.

a. What is the maximum sales level Albion's net fixed assets can support?

b. What is Albion's target capital intensity ratio?

c. What level of net fixed assets will Albion need to support its projected sales?

d. How much additional net fixed assets will need to be acquired for next year?

Solutions

Expert Solution

a.

Maximum sales level Ambion's net fixed assets can support = = $ 1,344,444.44

b.

Albions target capital intensity ratio =   

....... since the information for total assets(fixed + current) is not given, it is not possible to find out the capital intensity ratio...

c.

assuming that the fixed assets can run at 100% capacity without any additional abnormal loss of output.

the level of net fixed assets required will be =

=  

=

= $569,250

The minimum net fixed assets required to support its projected sales is $569,250

d.

additional net fixed assets to be acuquired for next year

= minimum net fixed assets required to support projected sales - current net fixed assets

= $569,250 - $550,000

= $19,250

(however it is key to note that this answer is only the best possible answer given the circumstances, since the information about the depreciation is not available. if depreciation amount is given. in order to remain consistent we must divide the above figure by (1 - depreciation rate) to arrive at the figure)

jeff jeffy answered 1 year ago
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