year Emery Industries had $450 million of sales and $225 million of fixed assets, so its FA/Sales ratio was 50%.However, its fixed assets were used at only 65% of capacity.If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?

Question

Quizplus · Accepted Answer

To find the cash generated, first calculate the full capacity sales: $225 million / 0.65 = $346.15 million. The FA/Sales ratio at full capacity is $346.15 million / $450 million = 0.769. The fixed assets needed at full capacity are $450 million * 0.769 = $346.15 million. The excess fixed assets are $225 million - $346.15 million = $78.75 million.

Year Emery Industries Had $450 Million of Sales and $225