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Experience:  MS Accounting; pursuing MBA and CPA
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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: 7 years ago.
Category: Finance
Expert:  Leena0414 replied 7 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