Company need to meet its target fixed assets and sales ratio

Assignment Help Financial Management

Reference no: EM131915052

The AFN equation assumes that ratios remain constant. However, firms are not always operating at full capacity so adjustments need to be made to the existing asset forecast. Excess capacity adjustments are changes made to the existing asset forecast because the firm is not operating at full capacity. For example, a firm may not be at full capacity with respect to its fixed assets. First, the firm's management must find out the firm's full capacity sales as follows: Next, management would calculate the firm's target fixed assets ratio as follows: Finally, management would use the target fixed assets ratio with the projected sales to calculate the firm's required level of fixed assets as follows: Required level of fixed assets = (Target fixed assets/Sales) × Projected sales Quantitative Problem 2: Mitchell Manufacturing Company has $1,500,000,000 in sales and $400,000,000 in fixed assets. Currently, the company's fixed assets are operating at 80% of capacity. What level of sales could Mitchell have obtained if it had been operating at full capacity? Round your answer to the nearest dollar. Do not round intermediate calculations. $ What is Mitchell's Target fixed assets/Sales ratio? Round your answer to two decimal places. Do not round intermediate calculations. % If Mitchell's sales increase by 60%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Round your answer to the nearest dollar. Do not round intermediate calculations.

Reference no: EM131915052

Questions Cloud

Appropriate discount rate for valuing the acquisition : What is the appropriate discount rate for valuing the acquisition?

Regression analysis is statistical technique : Regression analysis is a statistical technique that fits a line to observed data points so that the resulting equation can be used to forecast other data points

Black-scholes model to calculate value of the stock option : Use the Black-Scholes model to calculate the value of the stock option

Sales outstanding on cash conversion cycle : Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle.

Company need to meet its target fixed assets and sales ratio : how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio?

Calculate the present worth of annual costs : Refer to the present worth formula for a geometric gradient to calculate the present worth of annual costs.

What would be effective cost of bank loan : If the company could receive the funds from a bank at a rate of 9.5%, interest paid monthly, based on a 365-day year, what would be effective cost of bank loan.

How much is usnet transaction exposure : USNet, Inc., an American networking equipment firm, How much is USNet’s transaction exposure?

What is nanometrics required return : If the market return is expected to be 13.50 percent and the risk-free rate is 7.00 percent, what is Nanometrics’ required return?

User Account

All Pages