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Question
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?
a. $38.14
b. $33.75
c. $30.38
d. $36.79
e. $27.68
Answer
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Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% 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 Fixed Assets/Sales ratio should the company set?
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ANSWER: c
RATIONALE: Sales $250
Fixed assets $100
% of capacity utilized 40%
Sales at full capacity = Actual sales / % of capacity used = $625.00
u200b
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LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
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a. 3.84 times
b. 3.23 times
c. 3.63 times
d. 3.60 times
e. 3.40 times
ANSWER: e
RATIONALE: Current yr.'s sales $590
Growth rate 15%
Projected sales $678.5
Req. inventories = $30.2 + 0.25 Projected sales
= $30.2 + 0.25 $678.5 = $199.8
u200b
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u200b
LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
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Zervos Inc. had the following data for last year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? Do not round your intermediate calculations.
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Cost of goods sold: unchanged $80,000 $80,000
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u200b
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u200b
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u200b
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Torrence Inc. has the following data. If it uses the residual dividend model, how much total dividends, if any, will it pay out?
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