Question

Paladin Furnishings generated $2 million in sales during 2016, and its year-end total assets were $1.7 million. Also, at year-end 2016, 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 2017, the company estimates that its assets must increase by $0.85 for every $1.00 increase in sales. Paladin's profit margin is 5%, and its retention ratio is 55%. How large of a sales increase can the company achieve without having to raise funds externally

Answer 1

Answer:

The large of a sales increase can the company achieve without having to raise funds externally is $81,784

Explanation:

In order to calculate How large of a sales increase can the company achieve without having to raise funds externally we would have to calculate the following:

sales increase=Sales*growth rate

Sales=$2,000,000

growth rate=(Profit Margin * Retention ratio * Sales) /( Total year end Assets - Accounts payable - Accrued liabilities) - (Profit Margin * Retention ratio * Sales)

growth rate= (0.05 * 0.35 *  2,000,000 ) / (1,700,000 - 200,000 - 100,000) - ( 0.05 * 0.55 x 2,000,000)

growth rate=$55,000/$1,345,000

growth rate=4.089%

Therefore, sales increase=$2,000,000*4.089%

sales increase=$81,784

The large of a sales increase can the company achieve without having to raise funds externally is $81,784