Question

Assume sales for Peach Street Industries are expected to increase by 8.00% 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