Description of this paper

Most assets can be increased as a percentage of sa...

Description

Solution


Question

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?

 

Paper#13538 | Written in 18-Jul-2015

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