Bannister Legal Services generated $2,000,000 in sales during 2010, and its year

Question

Bannister Legal Services generated $2,000,000 in sales during 2010, and its year-end total assets were $1, 5000,000. Also, at year-end 2010, current liabilities were $5,000,000 consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2011, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sale, its profit margin will be 5%, and its payout ratio will be 60%. Question: How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate?

Explanation / Answer

Already Tried: Bannister Legal Services generated $2.0 million in sales during 2007, and its year-end total assets were $1.5 million. Also, at year-end 2007, current liabilities were $500,000, consisting of $200,000 notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2008, the company estimates that its assets must increase by 75 cents for every $1 increase in sales. Bannister's profit margin is 5%, and its payout ratio is 60%. How large a sales increase can the company achieve without having to raise funds externally? AFN = (A*/So)^S-(L*/So)^S - MS1(1-d) year end assets (A*) = 1.5 mill sales (So). 2007 = 2.0 mill (A*/So) = 1.5 / 2.0 = 0.5 or 50% Change in sales (^S) = (A*So) * ^S *** we need to find change in sales ***Actual liabilities do not include notes payable Actual liabilities/ 2007 Sales (Current not projected) Liabilities = $200,000 (AP) + $100,000 (Accruals) Liabilities = $300,000 Sales = 2 million Formula = (L*/So) =300,000 / 2,000,000 = .15 or 15% M = profit margin = 5% S1 = Sales forecasted unknown 1-d = 1 -dividend = 1 - 60% = 40% The ANSWER is 68,965.52 but what is the formula to achieve the answer

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