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In: Finance

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 assets to sales ratio?

18.89%

16.79%

20.99%

25.19%

Suppose WG&E is forecasting sales growth of 18% for this year. If existing and new fixed assets are used at 100% capacity, the firm’s expected fixed-assets turnover ratio for this year is___ ?

Solutions

Expert Solution

a)Asset turnover ratio =sales /Asset

               = 1720000/380000

              = 4.5263   (rounded to 4.53 )

b)correct option is "B"

Sales required if operated at 100% capacity = 1720000* 100/95

                                         = $ 1810526

c)correct option is "C"- 20.99%

Target fixed asset to sales ratio = 380000/1810526

                     = 20.99%

d)Increased sales = 1720000 (1+.18) = 2029600

Fixed asset required to support this sales : required sales if operated at 100% capacity * increased sales

                    = (380000/1810526) * 2029600

                 =   .20988*2029600

                 = 425972.45

Fixed-assets turnover ratio = 2029600/425972.45

                         = 4.76 Rounded

jeff jeffy answered 1 year ago
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