Question

Assume sales for Peach Street Industries are expected to increase by 9.00% from 2015 to 2016. Peach Street is operating at full capacity currently and expected assets-to-sales and spontaneous liabilities-to-sales to remain the same. Additionally, the firm is looking to maintain their 2015 net profit margin and dividend payout ratios for 2016. The firm’s tax rate is 37.00% and selected income statement and balance sheet information for 2015 is provided below: Entry Value Entry Value Current Assets $800.00 Sales $2,500.00 Net Fixed Assets (NFA) $700.00 Operating Costs $2,030.00 Total Assets $1,500.00 Depreciation $90.00 Accounts Payable and Accruals $30.00 Interest Expense $69.00 Notes Payable $180.00 Dividends Paid $93.30 Long term debt $510.00 Total Equity $780.00

The firm is projecting sales growth of 10% from 2015 to 2016. If the firm did not have access to or did not want to use external capital sources to grow sales, what is the maximum rate of sales growth (self-sustaining growth rate) could the firm could achieve under these conditions?

Answer 1

BOND - Microsoft Excel (Product Activation Failed) Add-Ins Data Review View - 2x = = = V General File Home Insert Page Layout Formulas % Cut Calibri 11 A A Ea Copy Paste B I U B- A Format Painter Clipboard Font HJ264 fx Wrap Text Merge & Center - E Σ AutoSum : A Fill 2 Sort & m Find & . $ -% Number Formatting as Table Styles Styles 2 Clear Filter Editing Select Alignment Cells HGHHH H HK Formula Bar HM HN HO HP HQ HR HS HTHU HO 264 265 266 267 268 269 270 271 272 273 income statement sales operating costs depreciation EBIT interest EBT tax net income dividend paid 2015 2500.00 2030.00 90.00 380.00 69.00 311.00 115.07 195.93 93.30 274 275 276 277 profit margin = dividend payout ratio = 7.8372% [net income/sales] 47.6190% [93.30/195.93] 278 279 280 281 282 283 284 M Rea H BANKING NOTE 510 BIDDING, UNDERWRITING EUAC AW PM LIFELP, IP, MRP, INFLATION YIELD WARRANTrefund bond Sheet2 AFN ferences: 1998 CLEAN INVOICE PRICE S1 S3 S40 B0 120% ls 10 ENG 0 + 14-10-2019

BOND - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Σ AutoSum : A Calibri 11 A = = = V General A A Wrap Text Merge Merge & Center Center B I U - D SF 4:0 .00 8.9 Insert Delete Format $ - % % Number Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Filter Editing Find & Select Alignment Cells Font f| ( HH H H HK Formula Bar HM HN HO HP HQ HRHS HTHU HOE E Copy Paste Format Painter Clipboard | HJ301 4 HG 282 283 284 285 286 287 288 self supporting growth rate is where AFN =0 289 290 291 292 293 AFN = INCREASE IN ASSETS - INCREASE IN LIABILITIES - ADDITION TO RETAINED EARNINGS 0 = 1500(X) - 30(X) - (2500(1+x)(7.8372%)(1-0.474190)) 0 = 1470(X) - 102.63(1+x) 102.63(1+X) = 1470(X) 1367.37(X) = 102.63 X = 0.0698163 X= 6.98% SELF SUPPORTING GROWTH RATE 294 295 296 297 298 299 300 301 302 H M BANKING NOTE 510 BIDDING, UNDERWRITING EUAC AW PM LIFELP, IP, MRP, INFLATION YIELD WARRANTrefund bond Sheet2 AFN ferences: 1998 Rea CLEAN INVOICE PRICE S1 S3 S40 B0 120% ls 10 ENG 0 + 14-10-2019