Sales Increase Maggies Muffins, In c., generated $4,000,000 in sales during 2013

Question

Sales Increase

Maggies Muffins, In c., generated $4,000,000 in sales during 2013, and its year-end total assets were $2,800,000. Also the year -end 2013 current liabilities were $1,000,000 consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Pooking ahead to 2014, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase as the same rate sales, profit margin will be 3%, and its payout ratio will be 45%. How alrge a sales increase can trhe company achieve without having to raise funds externally; that is what is its self-supporting growth rate? Do not round intermediate steps. Round your answers to the neares whole.

Sales can increase by$______________________, that is by _________________%.

Please show work so I can learn. Thank you.               

Explanation / Answer

Hi

Please see answer below

S0 = $4,000,000; A0* = $2,800,000; CL = $1000000; NP = $300,000; AP = $500,000; Accruals = $200,000; M = 3%; Payout ratio = 45%;

A0*/S0 = 0.7; L0*/S0 = (AP + Accruals)/S0 = ($500,000 + $200,000)/$4,000,000 = 0.175.

AFN    = (A0*/S0)?S

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