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Walter industries has $5 billion in sales and $1.7 billion

Resolved Question:

Walter industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity.

a) What level of sales would Walter Industries have obtained if it had been operating at full capacity?

b) What is Walter's Target fixed assets/Sales ratio?

c) If Walter's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/sales ratio?
Submitted: 6 years ago.
Category: Finance
Expert:  Leena0414 replied 6 years ago.

a) x(0.90) = $5 billion, where x equal sales if operating at full capacity

Divide $5 billion by 0.90 to obtain the answer = $5,555,555,555.56

 

b) Fixed assets/Sales = $1.7/5.0 = 0.34

 

c) Sales increase by 12% = $5.0 billion (1.12) = $5.6 billion

 

x/5.6 = 0.34

Solve for x = 0.34*5.6 = $1.904B

 

The question, however, asks for how large of an increase you will need in fixed assets. Currently you have $1.7 billion, so find the difference

 

$1.904 - $1.7 = $0.204B, or $204M increase in fixed assets

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