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Paladin furnishings generated $4 million in sales during 2021, and its year end total assets were $3.2 million. also, at year end 2021 current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accrued liabilities. looking ahead to 2022 the company estimates taht its assets must increase by $.80 for every $1.00 increase in sales. paladin'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?

Sagot :

Without having to raise funds externally sales could increase by $84,507.04.

Given that $4 million sales in 2021 and in end of the year total assets are $3.2, current liabilities are $500,000, payable notes are $200,000, accounts payable is $200,000 and accrued liabilities are $100,000 and in 2022 assets must increase by $.80 for every $1.00 increase in sales.

The amount of sales increase that the company can achieve without having to raise funds externally is calculated by multiplying the current year sales with the self-supporting growth rate.

Current Year Sales = $4,000,000

Profit Margin = 3.00%

Dividend Payout Ratio = 50%

Therefore, the Retention Ratio = 50%

Total Spontaneous Liabilities is, $200,000 + $100,000=$300,000

Last Year Total Assets = $3,200,000

Therefore, the Self-supporting Growth Rate=Addition to Retained Earnings÷[Total Assets–Total Spontaneous Liabilities-Addition to Retained Earnings]

= [Last year sales×Profit Margin×(1-Dividend Payout Ratio)]÷[Total Assets-Total Spontaneous Liabilities-Addition to Retained Earnings]

= [$4,000,000×0.03×(1–0.50)]÷[$3,200,000-$300,000–{[$4,000,000×0.04×(1–0.050)}]

= $60,000÷[$3,200,000-$300,000-$60,000]

= $80,000÷$2,840,000

= 0.02112676 or 2.112676%

Therefore, the increase in sales that the company can achieve without having to raise funds externally = Last Year Sales×Self-supporting Growth Rate

= $4,000,000×2.112676%

= $84,507.04

Hence, the Increase in Sales so the company achieve without having to raise funds externally $84,507.04”

Learn about profit margin from here brainly.com/question/5193190

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