Suppose Mariposa, Inc.’s Sales are projected to grow by 20% next year. It has total assets that grow proportionately with sales. Current total assets are $2 million and current total sales are $1 million. The only liabilities that change with sales are accounts payable, which are currently $300,000. The profit margin and dividend payout ratio are constant. The profit margin is 15 percent and the dividend payout ratio is 60 percent. Using the “percent of sales” approach, answer the following questions.

By how much must assets grow to support the forecast growth in sales?

By how much do “spontaneously changing liabilities” (accounts payable) grow with the forecast growth in sales? (Hint: this is the second part of the formula.)

What are Projected New Total Sales in the next year?

How much investment (toward needed asset growth) can be expected from retained earnings?

What are the external funds required to handle the projected growth in sales?