Answer :
Answer:
Self Supporting growth rate= 2% (To nearest whole number)
Increase in sales=$46,784 (To nearest Dollar)
Explanation:
First we will calculate self supporting growth rate:
Formula:
Self Supporting growth rate=[tex]\frac{PM*(1-PR)*S}{A-L-PM*(1-PR)*S}[/tex]
Where:
PM is the Profit Margin=4%=0.04
PR is the payout ratio=80%=0.8
S is the sales=$2 million=$2,000,000
A is the total assets=$1.4 million=$1,400,000
L is the spontaneous liabilities=Account Payable+Accruals
L is the spontaneous liabilities=$500,000+$200,000=$700,000
Self Supporting growth rate=[tex]\frac{0.04*(1-0.8)*\$2,000,000}{\$1,400,000-\$700,000-0.04*(1-0.8)*\$2,000,000}[/tex]
Self Supporting growth rate=0.02339181287=2.339181287%
Self Supporting growth rate= 2% (To nearest whole number)
Increase in sales=Sales*Self Supporting growth rate
Increase in sales=$2,000,000*0.02339181287
Increase in sales=$46,783.92574
Increase in sales=$46,784