The fixed assets required at full capacity sales is the capital intensity ratio

# The fixed assets required at full capacity sales is

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The fixed assets required at full capacity sales is the capital intensity ratio times the projected sales level: Total fixed assets = .35565(\$1,161,250) = \$396,480 So, EFN is: EFN = (\$183,480 + 396,480) – \$613,806 = –\$95,272 Note that this solution assumes that fixed assets are decreased (sold) so the company has a 100 percent fixed asset utilization. If we assume fixed assets are not sold, the answer becomes: EFN = (\$183,480 + 413,000) – \$613,806 = –\$166,154 27. The D/E ratio of the company is: D/E = (\$85,000 + 158,000) / \$322,900 D/E = .7526 So the new total debt amount will be: New total debt = .7526(\$418,632) New total debt = \$315,044 This is the new total debt for the company. Given that our calculation for EFN is the amount that must be raised externally and does not increase spontaneously with sales, we need to subtract the spontaneous increase in accounts payable. The new level of accounts payable will be, which is the current accounts payable times the sales growth, or: Spontaneous increase in accounts payable = \$68,000(.20) Spontaneous increase in accounts payable = \$13,600 #### You've reached the end of your free preview.

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