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:

Full Capacity Sales= (Actual sales) / (Percentage of capacity at which fixed aspects were operated)

Next, management would calculate the firm's target fixed assets ratio as follows:

(Total Fixed Assets) / (Sales) =( Actual Fixed Assets) / (Actual Fixed Assets) / (Full Capacity Sales)

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 $1,800,000,000 in sales and $200,000,000 in fixed assets. Currently, the company's fixed assets are operating at 80% of capacity.

1. What level of sales could Mitchell have obtained if it had been operating at full capacity? Do not round intermediate calculations. Round your answer to the nearest dollar. $
2. What is Mitchell's Target fixed assets/Sales ratio? Do not round intermediate calculations. Round your answer to two decimal places. %
3. If Mitchell's sales increase by 35%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Do not round intermediate calculations. Round your answer to the nearest dollar.