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Hodgkiss Mfg
Hodgkiss Mfg., Inc., is currently operating at only 82 percent of fixed asset capacity. Fixed assets are $406,700. Current sales are $490,000 and projected to grow to $651,341. How much in new fixed assets are required to support this growth in sales? Assume the company wants to operate at full capacity.
Expert Solution
Computation of the required new fixed assets:-
Full capacity sales = Current sales / Fixed asset capacity
= $490,000 / 82%
= $597,560.98
Capital intensity ratio = Fixed assets / Full capacity sales
= $406,700 / $597,560.98
= 0.6806
= $
Required new fixed asset = (Sales projected to grow * Capital intensity ratio) - Fixed assets
= ($651,341 * 0.6806) - $406,700
= $443,302.68 - $406,700
= $36,602.68
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