What is the maximum growth rate the firm can achieve


Question

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2013, is shown here (millions of dollars):

Cash $   3.5
Accounts payable $   9.0
Receivables 26.0
Notes payable 18.0
Inventories 58.0
Line of credit 0
Total current assets $ 87.5
Accruals 8.5
Net fixed assets 35.0
Total current liabilities $ 35.5



Mortgage loan 6.0



Common stock 15.0



Retained earnings 66.0
Total assets $122.5
Total liabilities and equity $122.5

Sales for 2013 were $325 million and net income for the year was $9.75 million, so the firm's profit margin was 3.0%. Upton paid dividends of $3.9 million to common stockholders, so its payout ratio was 40%. Its tax rate is 40%, and it operated at full capacity.

Assume that all assets/sales ratios, spontaneous liabilities/sales ratios, the profit margin, and the payout ratio remain constant in 2014. Do not round intermediate calculations.

If sales are projected to increase by $40 million, or 12.31%, during 2014, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
$ 6.35 million

Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
___________%

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Financial Management: What is the maximum growth rate the firm can achieve
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