A firm has $1 million in current sales volume and an internal growth r
QUESTION
A firm has $1 million in current sales volume and an internal growth rate of 15%. If sales are expected to increase by $100,000, then:(a) the firms forecast will not be met.(b) dividends will have to be reduced.(c) retained earnings will increase by $50,000.(d) external funding will not be required
According to the given information,Sales Volume = $1,000,000Internal growth rate = 15%So, the sales should increase by Increase in sales = $1,000,000 * 15% = $150,000But the sales volume got increased bu just $100,000. Therefore, the required growth rate is not met.Therefore, the firms forecast will not be met. The other options are not matching with the situation because we dont know the Companys dividend policy and dividends will not be linked with the sales and moreover
vidends will be issued according to the companys dividend policy.If sales increase the Retained earnings will also increase but not by the same rate. That may not be exactly 50%.External funding requirement will be decided according to the companys strategies.The correct option is a) The firms forecat will not be met.
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