Weber interstate paving co. had $450 million of sales and $225 million of fixed assets last year, so its fa/sales ratio was 50%. however, its fixed assets were used at only 55% of capacity. if the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?
select the correct answer.
a. $103.15 b. $101.25 c. $106.95 d. $105.05 e. $97.45

Option B. $101.25 million

Step-by-step explanation:

Given data of last year of Weber Interstate Paving co.

Sales = $450 million

Fixed assets = $225 million

Percentage of capacity used = 55%

Full capacity =

                     =

                    =

                   = $818.18

Target FA/Sales ratio = 50% of 55

                                   = 27.50%

Optimum FA = Sales × Sales ratio

                    = 450 × 27.5%

                    = $123.75

Cash generated = Actual fixed assets - Optimum FA

                            = 225 - 123.75

                           = $101.25 million

Option B. $101.25 million is the correct answer.