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Calculating maximum growth rate

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The Tapley Company is trying to determine an acceptable growth rate in sales. While the firm wants to expand, it does not want to use any external funds to support such expansion due to the particularly high interest rates in the market now. Having gathered the following data for the firm, what is the maximum growth rate it can sustain without requiring additional funds?

Capital intensity ratio = 1.2
Profit margin = 10%
Dividend payout ratio = 50%
Current sales = $100,000
Spontaneous liabilities = $10,000.

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Solution Summary

The solution explains how to determine the maximum griwth rate possible without raising additional funds.

Solution Preview

If no external funds are required then AFN=0. We use the AFN equation to solve for growth rate
AFN = Increase in assets - increase in spontaneous ...

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