The discussion of EFN in the chapter Implicitly assumed that the company was operating at full capacity. Often, this is not the case. Assume that Rosengarten was operating at 90 percent capacity. Full-capacity sales would be $1,000/.90 = $1,111. The balance sheet shows $1,800 in fixed assets. The capital intensity ratio for the company is: Capital Intensity ratio = Fixed assets/Full-capacity sales = $1,800/$1,111 =1.62 This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it reaches full capacity. At the projected sales level of $1,250, It needs $1,250 x 162 = $2,025 In fixed assets, which is $225 lower than our projection of $2,250 In fixed assets. So, EFN is $565-225 - $340. Blue Sky Manufacturing, Incorporated, is currently operating at 90 percent of fixed asset capacity. Current sales are $805,500 and sales are projected to grow to $940,000. The current fixed assets are $775,000. How much In new fixed assets is required to support this growth in sales? (Do not round Intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
The discussion of EFN in the chapter Implicitly assumed that the company was operating at full capacity. Often, this is not the case. Assume that Rosengarten was operating at 90 percent capacity. Full-capacity sales would be $1,000/.90 = $1,111. The balance sheet shows $1,800 in fixed assets. The capital intensity ratio for the company is: Capital Intensity ratio = Fixed assets/Full-capacity sales = $1,800/$1,111 =1.62 This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it reaches full capacity. At the projected sales level of $1,250, It needs $1,250 x 162 = $2,025 In fixed assets, which is $225 lower than our projection of $2,250 In fixed assets. So, EFN is $565-225 - $340. Blue Sky Manufacturing, Incorporated, is currently operating at 90 percent of fixed asset capacity. Current sales are $805,500 and sales are projected to grow to $940,000. The current fixed assets are $775,000. How much In new fixed assets is required to support this growth in sales? (Do not round Intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The discussion of EFN in the chapter implicitly assumed that the company was operating
at full capacity. Often, this is not the case. Assume that Rosengarten was operating at 90
percent capacity. Full-capacity sales would be $1,000/.90 = $1,111. The balance sheet
shows $1,800 in fixed assets. The capital intensity ratio for the company is:
Capital Intensity ratio= Fixed assets/Full-capacity sales = $1,800/$1,111 - 1.62
This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it
reaches full capacity. At the projected sales level of $1,250, It needs $1,250 × 1.62 =
$2,025 in fixed assets, which is $225 lower than our projection of $2,250 In fixed assets.
So, EFN is $565-225 = $340.
Blue Sky Manufacturing, Incorporated, is currently operating at 90 percent of fixed asset
capacity. Current sales are $805,500 and sales are projected to grow to $940,000. The
current fixed assets are $775,000.
How much in new fixed assets is required to support this growth in sales? (Do not round
Intermediate calculations and round your answer to the nearest whole number, e.g.,
32.)
New fixed assets
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