Sales and growth exercise


The most recent financial statements for Tool Co. are shown here:

Statement Balance Sheet

Sales $46,000 Net working capital $ 21,000 Long-term debt $ 60,000
Costs 30,400 Fixed assets 100,000 Equity 61,000

Taxable income $15,600 Total $121,000 Total $121,000

Taxes (34%) 5,304

Net income $10,296

Assets and costs are proportional to sales. Tool Co. maintains a constant 30 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales that can be sustained assuming no new equity is issued?

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Finance Basics: Sales and growth exercise
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