Question

Hodgkiss Mfg., Inc., is currently operating at only 95 percent of fixed asset capacity. Current sales are $800,000. Fixed assets are $480,000 and sales are projected to grow to $890,000. How much in new fixed assets are required to support this growth in sales

Answer 1

Answer:

$4,292,699.99

Explanation:

Calculation to determine How much in new fixed assets are required to support this growth in sales

Full capacity sales = $800,000/0.95 = $842,105.26

Capital intensity ratio = $480,000/ $842,105.26 = 0.57000000

Fixed asset need = ($890,000 × 0.57000000) - $480,000 = $4,292,699.99