Weber Interstate Paving Co. had $450 million of sales and $225 million of fixed assets last...

Weber Interstate Paving Co. had $450 million of sales and $225 million of fixed assets last year, so its FA/Sales ratio was 50%. However, its fixed assets were used at only 60% of capacity. If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?

Select the correct answer.

a. $91.65

b. $88.35

c. $93.30

d. $90.00

e. $94.95

Solutions

Expert Solution

Solution:

The answer is d. $90.00 worked out as below

Last year's information for Weber Interstate Paving Co.:

Sales = $450 million

Fixed Assets = $225 million

Fixed Assets / Sales = 50%

Capacity uilisation of fixed assets = 60%

Calculations at full capacity:

Had Weber Interstate Paving Co. to operate at full capacity of its Fixed Assets its:

Sales at full capacity = $450 / 60% = $750 million

Fixed Assets / Sales at full capacity = ($225 / $750) x 100 = 30% ......(of actual sales)

Since actual sales are held constant at $450 million under the new scenario while operating at full capacity, the Fixed Assets should be 30% of the actual sales of $450 million.

Hence, the fixed assets required = $450 x 30% = $135 million

Fixed assets are $225 million book value and the excess is not required.

Hence, if the company had been able to sell off enough of its fixed assets at book value, it could sell and generate cash of $225 - $135 = $90 million

Thus, the answer is d. $90.00

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Western Gas & Electric Co. (WG&E) had sales of $1,720,000 last year on fixed assets of...

Western Gas & Electric Co. (WG&E) had sales of $1,720,000 last year on fixed assets of $380,000. Given that WG&E’s fixed assets were being used at only 95% of capacity, then the firm’s fixed asset turnover ratio was ___ . How much sales could Western Gas & Electric Co. (WG&E) have supported with its current level of fixed assets? $1,629,473 $1,810,526 $2,172,631 $1,448,421 When you consider that WG&E’s fixed assets were being underused, what should be the firm’s target fixed...

Last year LaCroix Optical had $145 million of sales, and it had $40 million of fixed...

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. In millions, by how much could LaCroix Optical sales increase before it is required to increase its fixed assets? 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...

Last year LaCroix Optical had $145 million of sales, and it had $40 million of fixed...

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. (10 points) In millions, by how much could LaCroix Optical sales increase before it is required to increase its fixed assets? (10 points) 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...

Assets Liabilities Rate-Sensitive $375 million Rate-Sensitive $450 million Fixed-rate $525 million Fixed-rate $450 million What would...

Assets Liabilities Rate-Sensitive $375 million Rate-Sensitive $450 million Fixed-rate $525 million Fixed-rate $450 million What would happen to bank profits if the interest rates in the economy decrease by 2%? Specifically, would the profits increase or decrease? How much?

During the year, Belyk Paving Co. had sales of $2,392,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,392,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,433,000, $435,800, and $490,800, respectively. In addition, the company had an interest expense of $215,800 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) a. What is the company’s net income? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the...

During the year, Belyk Paving Co. had sales of $2,275,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,275,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,285,000, $535,000, and $420,000, respectively. In addition, the company had an interest expense of $245,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provision and assume interest expense is fully deductible.) What is Belyk Paving Company’s net income? What is Belyk Paving Company’s operating cash flow? Determine Belyk Paving Company’s Cash Coverage Ratio, Times...

During the year, Belyk Paving Co. had sales of $2,386,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,386,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,439,000, $436,400, and $491,400, respectively. In addition, the company had an interest expense of $216,400 and a tax rate of 30 percent. (Ignore any tax loss carryback or carryforward provisions.) a. What is the company’s net income?

During the year, Belyk Paving Co. had sales of $2,395,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,395,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,325,000, $615,000, and $444,000, respectively. In addition, the company had an interest expense of $269,000 and a tax rate of 23 percent. The company paid out $394,000 in cash dividends. Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock was issued during the year. (Ignore any tax...

During the year, Belyk Paving Co. had sales of $2,390,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,390,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,435,000, $436,000, and $491,000, respectively. In addition, the company had an interest expense of $216,000 and a tax rate of 30 percent (ignore any tax loss carryback or carryforward provisions.). The company paid out $393,000 in cash dividends. Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock...

During the year, Belyk Paving Co. had sales of $2,387,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,387,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,438,000, $436,300, and $491,300, respectively. In addition, the company had an interest expense of $216,300 and a tax rate of 40 percent (ignore any tax loss carryback or carryforward provisions.). The company paid out $384,000 in cash dividends. Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock...

Subjects