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Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount.

Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, Fixed assets must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume S&S Air is currently producing at 100 per cent capacity. As a result, to increase production, the company must set up entirely new line at a cost of $4,000,000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year?




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After Chris completed the ratio analysis for S&S Air, Mark and Todd approached him about
planning for next year’s sales. The company had historically used little planning for investment...

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