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%

(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%