Last year Emery Industries had $450 million of sales and $225 million of fixed assets,so its Fixed Assets/Sales ratio was 50%.However,its fixed assets were used at only 85% 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: $450 million / 0.85 = $529.41 million. The Fixed Assets/Sales ratio at full capacity is 50%, so required fixed assets at full capacity = 0.50 * $529.41 million = $264.71 million. The current fixed assets are $225 million, so the excess fixed assets = $264.71 million - $225 million = $39.71 million. The cash generated by selling the excess fixed assets is $39.71 million - $6 million (15% of $39.71 million) = $33.75 million.

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