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 45% 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?

Price-sales ratio, often known as the P/S ratio or PSR, is a stock valuation indicator. It is computed by dividing the market capitalization of the company by its most recent fiscal year's revenue, or, equivalently, by dividing the share price of the stock by its revenue per share.

The sales ratio will be calculated as below:-

Sales= $450 Million

Fixed Assets= $225 Million

% of capacity utilized. . 65%

Sales at full capacity = actual sales/%of capacity used = 692.31 millions dollars .

Target FA = Full capacity FA/sales = FA/Capacity sales = 32.50%

(225*65% = 146.25, 146.25/450 = 32.50%)

Optimal FA = sales * targeted FA/Sales Ratio = 450*32.50% = 146.25

Cash Generated = Actual FA-optimal FA = 225-146.25 = 78.75 millions dollars

Therefore, the amount of cash generated is 78.75 Million.

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