Question

Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,500,000....

Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,500,000. Also, at year-end 2015, 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 2016, 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 7%, and its payout ratio will be 70%. 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 $_____ which is ____%

Homework Answers

Answer #1

a)

Self support growth rate g = _   (M*(1-POR)*S0 )____________                              

(A0 – L0 – M*(1-POR)*S0)

Where:

M (Profit margin) = net income / sales = 7%

POR = Payout ratio = 70%

S0 = Sales = $2,000,000

A0 = Assets = $1,500,000

L0 = accounts payable and accruals = $500,000+$200,000=$700,000

Then g = (0.07*(1-0.7)*2000000) / ( 1500000-700000-0.07*(1-0.7)*2000000 )

=4200 / (800000-4200)

= 5.541%

b) How large a sales increase

= sales* self support growth rate

=$2,000,000*0.05541

=$110,818

Hence, sales can increase by $110,818.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,300,000....
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,300,000. Also, at year-end 2015, 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 2016, 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 50%....
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,600,000....
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,600,000. Also, at year-end 2015, 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 2016, 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 5%, and its payout ratio will be 50%....
Maggie's Muffins Bakery generated $2,000,000 in sales during 2016, and its year-end total assets were $1,700,000....
Maggie's Muffins Bakery generated $2,000,000 in sales during 2016, and its year-end total assets were $1,700,000. 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 5%, and its payout ratio will be 40%....
Maggie's Muffins Bakery generated $4,000,000 in sales during 2016, and its year-end total assets were $2,800,000....
Maggie's Muffins Bakery 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 6%, and its payout ratio will be 70%....
Maggie's Muffins Bakery generated $6 million in sales during 2018, and its year-end total assets were...
Maggie's Muffins Bakery generated $6 million in sales during 2018, and its year-end total assets were $3 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 5%, and its payout ratio...
Maggie's Muffins Bakery generated $2 million in sales during 2018, and its year-end total assets were...
Maggie's Muffins Bakery generated $2 million in sales during 2018, and its year-end total assets were $1 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 7%, and its payout ratio...
Maggie's Muffins Bakery generated $4 million in sales during 2019, and its year-end total assets were...
Maggie's Muffins Bakery generated $4 million in sales during 2019, and its year-end total assets were $2 million. Also, at year-end 2019, 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 2020, 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 6%, and its payout ratio...
Maggie's Muffins Bakery generated $4 million in sales during 2018, and its year-end total assets were...
Maggie's Muffins Bakery generated $4 million in sales during 2018, and its year-end total assets were $2.4 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 4%, and its payout ratio...
Self-Supporting Growth Rate Maggie's Muffins Bakery generated $4 million in sales during 2019, and its year-end...
Self-Supporting Growth Rate Maggie's Muffins Bakery generated $4 million in sales during 2019, and its year-end total assets were $2.2 million. Also, at year-end 2019, 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 2020, 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 7%, and...
Maggie’s Muffins, Inc., generated 7,000,000 in sales during 2018, and its year-end total assets were 4,000,000....
Maggie’s Muffins, Inc., generated 7,000,000 in sales during 2018, and its year-end total assets were 4,000,000. Also, at year-end 2018, current liabilities were 1,300,000, consisting of 500,000 of notes payable, 500,000of accounts payable, and 300,000 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 6%, and its payout ratio will be 70%. What’s...