Info

EFN $ 78.7

n/a

4.2 Full-capacity sales are equal to current sales divided by the capacity utilization. At 60 percent of capacity:

$4,250 = .60 X Full-capacity sales $7,083 = Full-capacity sales

With a sales level of $4,675, no net new fixed assets will be needed, so our earlier estimate is too high. We estimated an increase in fixed assets of $2,420 -2,200 = $220. The new EFN will thus be $78.7 - 220 = 2$141.3, a surplus. No external financing is needed in this case.

At 95 percent capacity, full-capacity sales are $4,474. The ratio of fixed assets to full-capacity sales is thus $2,200/4,474 = 49.17%. At a sales level of $4,675, we will thus need $4,675 X .4917 = $2,298.7 in net fixed assets, an increase of $98.7. This is $220 - 98.7 = $121.3 less than we originally predicted, so the EFN is now $78.7 - 121.3 = 2$42.6, a surplus. No additional financing is needed.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

II. Financial Statements and Long-Term Financial Planning

4. Long-Term Financial Planning and Growth

© The McGraw-Hill Companies, 2002

The Accidental Blogging Millionaires

The Accidental Blogging Millionaires

Get Inspired By The Most Popular Bloggers Online! If You Want To Skyrocket Your Success With Business And Improve Your Overall Life You Need To Have A Look At The Accidental Blogging Millionaires! Business can be a fight, particularly when you’re trying to establish one online and like all fights, to succeed you must find the winning techniques and apply them.

Get My Free Ebook


Post a comment