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Question
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?
a. 13.3%
b. 14.1%
c. 16.0%
d. 18.2%
e. 18.4%
ANSWER: c
RATIONALE: Sales $250
Fixed assets $100
% of capacity utilized 40%
Sales at full capacity = Actual sales / % of capacity used = $625.00
u200b
Target FA/Sale ratio = Actual FA/Full capacity sales = 16.0%
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.
35. Fairchild Garden Supply expects $590 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales). All dollars are in millions. What is the projected inventory turnover ratio for the coming year?
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
Inventory turnover ratio = Sales / Inventories = 3.40 times
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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