In this case, a company has a “staircase” or “lumpy” fixed cost structure.
Assume that East Coast Yachts is currently producing at 100 percent of capacity and sale are expected to grow at 20 percent.
As a result, to expand production, the company must be set up an entirely new line at a cost of $95,000,000.
Prepare the pro forma income statement and balance sheet.
What is the new EFN with these assumption?
What does is imply about capacity utilization for East Coast Yachts next year?