#4 Sales Increase Maggie\'s Muffins Bakery generated $2,000,000 in sales during
ID: 2786403 • Letter: #
Question
#4 Sales Increase
Maggie's Muffins Bakery generated $2,000,000 in sales during 2016, and its year-end total assets were $1,500,000. Also, at year-end 2016, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2017, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 4%, and its payout ratio will be 45%. How large a sales increase can the company achieve without having to raise funds externally—that is, what is its self-supporting growth rate? Do not round intermediate calculations. Round your answers to the nearest whole.
Sales can increase by $________, that is by _______%.
Explanation / Answer
Answer)
We first calculate the self supporting growth rate i.e M * (1-POR) *So / (Ao -Lo-M*(1-POR)*So)..........1
M = Net Income / Sales = 4%
POR = Pay out ratio = 45%
So = Sales = 2000000
Ao = 1500000
Lo = Spontaneous Liabilities = 500000 + 200000 = 700000
Putting these values in equation 1
= 0.04 *(1-0.45)*2000000 / 1500000-700000-(0.04*(1-0.45)*2000000)
=0.058201
= 5.82%
Self sustaning growth rate is 5.82%
Calculation of “how large a sales can increase” amount:
= Sales amount x Self sustaining growth rate
= 2000000 x 5.8201%
= 116402.12
Therefore sales can increase by 116402.12
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.