Without having to raise funds externally sales could increase by $84,507.04.
Given that $4 million sales in 2021 and in end of the year total assets are $3.2, current liabilities are $500,000, payable notes are $200,000, accounts payable is $200,000 and accrued liabilities are $100,000 and in 2022 assets must increase by $.80 for every $1.00 increase in sales.
The amount of sales increase that the company can achieve without having to raise funds externally is calculated by multiplying the current year sales with the self-supporting growth rate.
Current Year Sales = $4,000,000
Profit Margin = 3.00%
Dividend Payout Ratio = 50%
Therefore, the Retention Ratio = 50%
Total Spontaneous Liabilities is, $200,000 + $100,000=$300,000
Last Year Total Assets = $3,200,000
Therefore, the Self-supporting Growth Rate=Addition to Retained Earnings÷[Total Assets–Total Spontaneous Liabilities-Addition to Retained Earnings]
= [Last year sales×Profit Margin×(1-Dividend Payout Ratio)]÷[Total Assets-Total Spontaneous Liabilities-Addition to Retained Earnings]
= [$4,000,000×0.03×(1–0.50)]÷[$3,200,000-$300,000–{[$4,000,000×0.04×(1–0.050)}]
= $60,000÷[$3,200,000-$300,000-$60,000]
= $80,000÷$2,840,000
= 0.02112676 or 2.112676%
Therefore, the increase in sales that the company can achieve without having to raise funds externally = Last Year Sales×Self-supporting Growth Rate
= $4,000,000×2.112676%
= $84,507.04
Hence, the Increase in Sales so the company achieve without having to raise funds externally $84,507.04”
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