In the previous problem, suppose the firm was operating at only 80 percent capacity in 2015. What
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In the previous problem, suppose the firm was operating at only 80 percent capacity in 2015. What is EFN now?
Capital intensity ratio = Fixed assets/Full-capacity sales = $1,800/$1,111 = 1.62
This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it reaches full capacity. At the projected sales level of $1,250, it needs $1,250 × 1.62 5 $2,025 in fixed assets, which is $225 lower than our projection of $2,250 in fixed assets. So, EFN is only $565 - 225 = $340.
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Related Book For
Corporate Finance
ISBN: 978-0077861759
11th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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