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Answer to Question #6526 in Economics of Enterprise for LaMarcus Streeter

Question #6526
4. Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its FA/Sales ratio was 40%. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?

a. 28.5%
b. 30.0%
c. 31.5%
d. 33.1%
e. 34.7%
Expert's answer
The right answer is B. 30.0%
we should use this formula: Target FASales ratio = Fixed Assets Full Capacity Sales

Target FASales ratio = 100 000 000/250 000 000*75%=0.3

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