FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 130

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.
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 have had had it been operating at full capacity. What
target FA/Sales ratio should the company set?
a. 28.5%
b. 30.0%
c. 31.5%
d. 33.1%
e. 34.7%
5. Howton&Howton Worldwide (HHW) is planning its operations for
the coming year, and the CEO wants you to forecast the firm's additional
funds needed (AFN). The firm is operating at full capacity. Data for use
in the forecast are shown below. However, the CEO is concerned about
the impact of a change in the payout ratio from the 10% that was used in
the past to 50%, which the firm's investment bankers have
recommended. Based on the AFN equation, by how much would the
AFN for the coming year change if HHW increased the payout from
10% to the new and higher level? All dollars are in millions.