November 8th, 2022
Pierce Furnishings generated $2.o million in sales during 2004, and its year-end total assets were $1.5 million. Also, at year-end 2004, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and 100,000 of accruals. Looking ahead to 2005, the company estimates that its assets must increase by 75 cents for every $1 increase in sales. Pierce’s profit margin is 5 percent, and its payout ratio is 60 percent.
How large a sales increase can the company achieve without having to raise funds externally?