You are forecasting cash flows for a new investment. You forecast working capital needs as a percentage...
You are forecasting cash flows for a new investment. You forecast working capital needs as a percentage of revenues; should your fixed asset requirements also be as a percentage of revenues?
Homework Answers
While determining the fixed assets requirements must be determined as per the sales capacity that will be needed to meet the demand forecasted and not necessarily as a percentage of revenue. Also, the asset turnover ratio is particularly more useful to determine the assets required to achieve the desired turnover. Determining the fixed assets as a percentage of revenues is particularly more useful in ascertaining the external financing needs of the business.
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You are forecasting cash flows for a new
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