Maggie\'s Muffins Bakery generated $2 million in sales during 2018, and its year

Question

Maggie's Muffins Bakery generated $2 million in sales during 2018, and its year-end total assets were $1.5 million. Also, at year-end 2018, current liabilities were $1 million, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2019, 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 606, and its payout ratio will be 75%. 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 calculations. Round the monetary value to the nearest dollar and percentage value to the nearest whole number. Sales can increase by $ , that is by

Explanation / Answer

We have

Self supporting Growth Rate = [PM*b*S0] / [A0-L0-(PM*b*S0)]

Where

Ao - Assets (at time 0) which vary directly with Sales = 1.50million

Lo - Liabilities (at time 0) which vary directly with Sales=1 million

So - Current Sales = 2 million

b - Retention ratio = 1- payout ratio = 1- .75 = .25

PM - Profit Margin = 6%

Self supporting Growth Rate = [.06*.25*2 million] / [1.50million -1 million-(.06*.25*2 million)]

= .03 million / (.5 million - .03 million)

= .03 million / .47 million

= .0638

= 6.38%

= 6%

Increase in sales ($ value) = Current Sales * Self supporting Growth Rate

= 2 million * 65

= .12 million

= 120,000

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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