Sales increase Pierce Furnishings generated $4 million in sales during 2011, and

Question

Sales increase Pierce Furnishings generated $4 million in sales during 2011, and its year-end total assets were $2.2 million. Also, at year-end 2011, 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 2012, the company estimates that its assets must increase by $0.55 for every $1.00 increase in sales. Pierce's profit margin is 4%, and its retention ratio is 55%. How large of a sales increase can the company achieve without having to raise funds externally? Round your answer to the nearest cent.

Explanation / Answer

AFN = 0.75*S' - (300000/4000000)S' - 0.04*0.55*S1 0= 0.675S' - 0.022S1 0.675(S1-4000000) = 0.022S1 S1 = $4134762.634 S1-S0 = $4134762.634 - $4000000 =$134762.634

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