Question

North Construction had $850 million of sales last year, and it had $425 million of fixed assets that were used at only 90% of capacity. What is the maximum sales growth rate North could achieve before it had to increase its fixed assets?

a. 11.11%
b. 16.81%
c. 13.96%
d. 5.41%
e. 8.26

Answer 1

a. 1.11%

Step-by-step explanation:

The computation of the maximum sales growth rate is shown below:-

Sales 90% Capacity = $850,000,000

Sales at 100% Capacity = $850,000,000 ÷ 90% × 100%

= $944,444,444.4

Growth in Sales by using unused capacity = Sales at 100% Capacity - Sales 90% Capacity

=$944,444,444.4 - $850,000,000

= $94,444,444.4

Growth rate =Growth in Sales by using unused capacity ÷ Sales last year

-94444444.4 ÷ $850,000,000

= 1.11%