MJSProblem 12-4 Sales Increase Maggie\'s Muffins, Inc., generated $4,000,000 in

Question

MJSProblem 12-4
Sales Increase

Maggie's Muffins, Inc., generated $4,000,000 in sales during 2016, and its year-end total assets were $2,800,000. 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 55%. 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 steps. Round your answers to the nearest whole.

Sales can increase by $  , that is by  %.

Note: Sales incresed by $142011.83 is correct but that is by 3.55% is incorrect

Explanation / Answer

Ans) Maggie's Muffins, Inc. Amount Sales $ 4,000,000.00 Total Assets $ 2,800,000.00 Current Liabilities Notes Payable $      300,000.00 Accounts Payable $      500,000.00 Accruals $      200,000.00 Profit Margin 4% Payout Ratio 55% Spontaneous Liabilities $      700,000.00 Self supporting growth rate= Profit Margin(1-Payout Ratio)(Sales) / (Assets-Liabilities)-((Profit Margin(1-Payout Ratio)(Sales)) Profit Margin(1-Payout Ratio)(sales) $        72,000.00 (Assets-Spontaneous Liabilities)-(Profit Margin(1-Payout ratio)(sales) $ 2,028,000.00 Self Supporting growth rate= 0.0355 3.5503 % Increase in sales= Sales*Self supporting growth= $      142,011.83

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