Firms whose fixed assets are lumpy frequently have excess capacity and this

Firms whose fixed assets are lumpy frequently have

  • Strayer University
  • FIN 534
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c. Firms whose fixed assets are “lumpy” frequently have excess capacity, and this should be accounted for in the financial forecasting process.d. For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets.e. There are economies of scale in the use of many kinds of assets. When economies occur the ratios are likely to remain constant over time as the size of the firm increases. The Economic Ordering Quantity model for establishing inventory levels demonstrates this relationship. 4. Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its FA/Sales ratio was 40%. However, its fixed assets were used at only 75% 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
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have had had it been operating at full capacity. What target FA/Sales ratio should the company set?
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  • Spring '08
  • NALLA
  • Balance Sheet, Generally Accepted Accounting Principles, AFN, AFN Equation

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