Jed's Designer Clothes has $1,800 of sales and $1,630 of total assets. The ﬁrm is operating at 75% of capacity. What is the capital intensity ratio at full capacity?

Question

Quizplus · Accepted Answer

First, we need to find the current capital intensity ratio:

Capital intensity ratio = Total assets / Sales = 1,630 / 1,800 ≈ 0.906

Next, we need to find the assets and sales at full capacity. Since the firm is currently operating at 75% capacity, this means that the assets and sales at full capacity would be:

Assets at full capacity = Total assets / Capacity utilization rate = 1,630 / 0.75 = 2,173.33

Sales at full capacity = Sales / Capacity utilization rate = 1,800 / 0.75 = 2,400

Finally, we can calculate the capital intensity ratio at full capacity as:

Capital intensity ratio at full capacity = Assets at full capacity / Sales at full capacity = 2,173.33 / 2,400 ≈ 0.905

Therefore, the best choice is B (0.68) as it is closest to the calculated value (0.905) at full capacity.

Jed's Designer Clothes Has $1,800 of Sales and $1,630 of Total