Sales increase Pierce Furnishings generated $2 million in sales during 2012, and

Question

Sales increase

Pierce Furnishings generated $2 million in sales during 2012, and its year-end total assets were $1.4 million. Also, at year-end 2012, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accrued liabilities. Looking ahead to 2013, the company estimates that its assets must increase by $0.70 for every $1.00 increase in sales. Pierce's profit margin is 7%, and its retention ratio is 60%. How large of a sales increase can the company achieve without having to raise funds externally? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent.

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Explanation / Answer

Calculation for Available Cash

2012 Sale 2,000,000.00

Profit Margin 7%

Cash profit 2,000,000 * 7% = 140,000.00

retention ratio 60%

Cash Available/invested 140,000 * 60% = 84,000.00

Assuming all liabilities are met with the revenues from 2013, the sales increase expected from the invested cash will be 84,000/.7 = $ 120,000.00

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