full capacity sales are equal to current sales divided by the capacity utilization 556267

Full capacity sales are equal to current sales divided by the capacity utilization. At 60 percent of capacity:

$4,250 =.60 ×Full capacity sales

$7,083 =Full capacity sales

With a sales level of $4,675, no net new fixed assets will be needed, so our earlier estimate is too high. We estimated an increase in fixed assets of $2,420 2,200 = $220. The new EFN will thus be $78.7 220 = 2$141.3, a surplus. No external financing is needed in this case.

At 95 percent capacity, full capacity sales are $4,474. The ratio of fixed assets to full capacity sales is thus $2,200/4,474= 49.17%. At a sales level of $4,675, we will thus need $4,675 ×.4917 =$2,298.7 in net fixed assets, an increase of $98.7. This is $220 98.7 =$121.3 less than we originally predicted, so the EFN is now $78.7 121.3 =2$42.6, a surplus. No additional financing is needed.

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