Excess capacity adjustments

Water and Power Co. (W&P) currently has $540,000 in total assets and sales of $1,550,000. Half of W&Ps total assets come from net fixed assets, and the rest are current assets. The firm expects sales to grow by 18% in the next year. According to the AFN equation, the amount of additional assets required to support this level of sales is $

.

W&P was using its fixed assets at only 96% of capacity last year. How much sales could the firm have supported last year with its current level of fixed assets?

$1,533,854

$1,856,770

$1,614,583

$1,372,396

When you consider that W&Ps fixed assets were being underused, its target fixed assets to sales ratio should be

%.

When you consider that W&Ps fixed assets were being underused, how much fixed assets must W&P raise to support its expected sales for next year?

$41,234

$35,856

$30,478

$34,063