Question

Last year Handorf-Zhu Inc. had $850 million of sales, and it had $425 million of fixed assets that were used at only 85% of capacity. What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

(A) 19.06%
(B) 18.88%
(C) 17.65%
(D) 16.94%

Answer 1

Answer:

(C) 17.65%

Explanation:

For computing the maximum sales growth rate, first we have to determine the full capacity sales which are shown below:

= Sales value ÷ capacity percentage

= $850 million ÷ 85%

= $1,000 million

Now the maximum sales growth rate would be

= (Full capacity sales - actual sales) ÷ (actual sales)

= ($1,000 million - $850 million) ÷ ($850 million)

= $150 million ÷ $850 million

= 17.65%