Jen Furnishings generated $4 million in sales during 2016, and its year-end tota

Question

Jen Furnishings generated $4 million in sales during 2016, and its year-end total assets were $3.2 million. Also, at year-end 2016, current liabilities were $500,000, consisting of $200,000 of notes payable, and $100,000 of accrued liabilities. Looking ahead to 2017, the company estimates that its assets must increase by $0.80 for every $1.00 increase in sales. Jen Furnishing’s profit margin is 3%, and its retention ratio is 50%. How large of a sales increase can the company achieve without having to raise funds externally?

Explanation / Answer

Sales in 2016 = 4000000

Profit margin = 3%

Profit = 4000000*3% i.e 120000

Retention ratio = 120000*0.50 i.e 60000

Retained earnings = 60000

Sales can increase by 60000/0.80 i.e 75000

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.