Full-capacity sales are equal to current sales divided by the capacity utilization.

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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