P4-8 Sales and Growth [LO2] The most recent financial statements for Throwing Co

ID: 2768330 • Letter: P

Question

P4-8 Sales and Growth [LO2]

The most recent financial statements for Throwing Copper Co. are shown here:

28,800

$109,350

$10,692

Assets and costs are proportional to sales. The company maintains a constant 20 percent dividend payout ratio and a constant debtequity ratio.

What is the maximum increase in sales that can be sustained assuming no new equity is issued? (Do not round your intermediate calculations.)

which of the following is the answer

$1,641.79

$7,374.3

$3,818.71

$7,274.3

$7,474.3

The most recent financial statements for Throwing Copper Co. are shown here:

AFN = (A/S0)S–(L/S0)S–MS1(RR)

A- Assets tied directly to sales

L-spontaneous liabilities that are affected by sales

S0=the previous year's sales

S1=total projected sales for next year

S=the change in sales between S0 and S1

MS1=projected net income

RR=the retention ratio from net income

AFN = (A/S0)×(S1-S0)–(L/S0)×(S1-S0)–MS1(RR)

$0 = ($109,350/$45,000)×(S1-$45,000)–S1×23.76%(1-20%)

$0 = 2.43×S1-$109,350–S1×0.19

S1×2.24 = $109,350

Expected sales without additional financing, S1 = $48,816.96

Sales increased = $48,816.96-$45,000 = $3,816.96

Hence, correct option is $3,818.71 (Rounding off error)

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