Pierce Furnishings generated $4 million in sales during 2012, and its year-end t
ID: 2693323 • Letter: P
Question
Pierce Furnishings generated $4 million in sales during 2012, and its year-end total assets were $3 million. Also, at year-end 2012, 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 2013, the company estimates that its assets must increase by $0.75 for every $1.00 increase in sales. Pierce's profit margin is 7%, and its retention ratio is 50%. How large of a sales increase can the company achieve without having to raise funds externally? Write out your answer completely.Explanation / Answer
THIS WILL BE HELPFUL FOR YOU AND PL RATE ME FIRST S2012 = $4,000,000 A2012 = $3,000,000 CL2012 = $500,000 NP2012 = $200,000 A/P2012 = $200,000 Accrued liabilities2012 = $100,000 A*/S0 = 0.75 PM = 5% RR = 30% AFN= (A*/S0)?S – (L*/S0)?S – MS1(RR) $0 = (0.75)?S – ($300,000 / $4,000,000)?S - (0.05) (S1)(0.3) $0 = (0.675)?S - (0.015)S1 $0 = (0.675)(S1 - S0) - (0.015)S1 $0 = (0.675)(S1 - 4,000,000) - (0.015)S1 $0 = (0.675)S1 - $2700,000 - (0.015)S1 S1 = $4090909.09 S1 - S0 = $4090909.09 - $4,000,000 = $90909.091