Percent of Sales Method

1. Use the Percentage of Sales method and the balance sheet below to create a proforma balance sheet for Hughes Corporation. All current assets and current liabilities increase in proportion to sales. $60,000 in equipment will need to be acquired. Hughes had sales of $600,000 and they are expected to increase to $660,000. 4% of Sales is profit after tax. Hannibal pays out 50% of its profit in dividends. Assume notes are current liabilities.

2. Use the information above and the fact that 60% of assets vary with sales (A/S₁) to calculate the Sustainable Growth Rate (SGR) for Hughes Corporation.

Assets Cash Accounts receivable Inventory Current Assets Hughes Corporation Balance sheet 31-Dec-20 Liabilities 60,000 110,000 Current debt 130,000 Long term debt 300,000 total liabilities Equity 300,000 Equity 200,000 140,000 340,000 Capital Assets 260,000 Total Assets Total liabilities 600,000 and equity 600,000