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b. Pierce Furnishings generated $2.0 million in sales during 2020, and its year-end total assets were $1.5 million. Also, at year-end 2020, current liabilities were
b. Pierce Furnishings generated $2.0 million in sales during 2020, and its year-end total assets were $1.5 million. Also, at year-end 2020, current liabilities were $500,000, consisting of $200,000 of
notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2021, the company estimates that its assets must increase by 75 cents for every $1 increase in sales. Pierces profit margin is 5 percent, and its retention ratio is 40 percent.
i. Calculate the external financing needed if 2021 sales revenue is expected to be $2.5
million.
ii. How large a sales increase can the company achieve without having to raise funds
externally?
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