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Solution Library
Calculation of Maximum Increase in Sales the Firm can Achieve
Question
|
Assets |
Amount |
25% |
90% capacity of actual |
|
Cash |
50 |
62.5 |
45 |
|
Inventory |
150 |
187.5 |
135 |
|
FA |
600 |
750 |
540 |
|
Total |
800 |
1000 |
720 |
|
Liability |
Amount |
25% |
|
|
Accounts payable |
100 |
125 |
90 |
|
Notes payable |
100 |
125 |
90 |
|
long term Debt |
350 |
434 |
477 |
|
Equity |
250 |
250 |
250 |
|
800 |
1000 |
||
|
Reserves and Surplus |
0 |
66 |
47 |
|
Particulars |
Amount |
25% |
90% of actual |
|
Sales |
800 |
1000 |
720 |
|
Cost |
600 |
750 |
540 |
|
Profit |
200 |
250 |
180 |
|
Taxes |
68 |
85 |
61 |
|
132 |
165 |
119 |
Calculate:
a)
i) External finance if sales increased by 25% :
ii) Firm is producing at only 90% capacity
b) Suppose the firm wishes to maintain a constant debt-equity ratio, retains 60% of net income, and raises no new equity. Assets and costs maintain a constant ratio to sales. What is the maximum increase in sales the firm can achieve?
Summary
This question belongs to accounting and discusses about assets and costs maintain a constant ratio to sales and maximum increase in sales of a firm.
Total word count: 305
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