# . The Approaches Or Models That Jim And Mason Can Use Include The Following

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Ð²Ð‚Ñž They need to come up with a sales forecast putting in mind assumptions such as the future economic conditions based on whether there will be more demand for the product and if which may lead to an increase in sales revenue as well as if there is a decline in demand of the product which may lead to a decline in revenues for the company. An increase in demand also means that Jim and Mason will have to employ more stuff to meet the customers demand on time and this will lead to an increase in expenditure for the company because there will be more salaries that need to be paid. Increase in sales revenue will mean that investment in fixed assets will also increase and a decline will mean that the investments in the fixed assets will also decline. Inflation is another economic condition that Jim and Mason must put into consideration. Inflation refers to a situation whereby there is too much currency in circulation. This will affect the company in such a way that they will incure more expenses in the production of the final product.

Ð²Ð‚Ñž They also need to come up with a proforma financial statement/projection forecast starting with the sales revenue whereby the sales and costs of goods will change.

Ð²Ð‚Ñž Jim and Mason may further try to find out if they need any external funding using the External Funds Needed formula (EFN) in order to find out the additional funds needed (AFN) to keep the company running as well as pay the employees. This can be got using the formula below;

EFN= {(A/So) xchange in sales}-Net marginx {So+change in sales} xRetention Rate

Whereby So+ change in sales means the new sales, A means assets and So is the current sales.

2. A/s= 25.7

Net margin=4.7%

Retention rate=60%

Current sales=4,700,000

0=25.7%xchange in sales-4.7x4, 700,000+ changes in salesx60%

0=25.7/100xa-47/100x4700,000+ax60/100

0=25.7xa-220900+ax60/100

Therefore change in sales=\$579283.21

The growth rate that can therefore be supported with no external funding is 579283/4700, 000=12.32%

Internal growth rate= ROAX Retention rate/1-ROAXRetention rate

ROA = Net income/ Total assets

= 219 900/1,206 916

=18.2%

Internal growth rate = 18.2%x60%/1-(18.2%x60%)

= 12.26%

2004

A/So = 25.68%

Net Margin = 4.68%

Retention Rate = 60%

Current sales = 4,700,000

Efn = 0

Change in Sales = x

0 = [ 25.68% x cs] - 4.68% x ( 4,700,000 + cs) x 60%

0 = 25.68%cs - [ (( 4.68% X 4,700,000) + 4.68%cs)x 60%]

0 = 0.2568cs - [(219,900 + 0.0468cs)x 0.6]

0 = 0.2568cs -131,940 - 0.028072cs

131,940 = 0.2568cs - 0.028072cs

131,940 = 0.22872cs

Change in sales = 131,940 / 0.22872

Change in sales = 576,866.83

2003

A/So = 28.52%

Net Margin = 4.52%

Retention Rate = 60%

Current sales = 3,760,000

Efn = 0

Change in Sales = x

0 = [ 28.52% x cs] - 4.52% x ( 3,760,000 + cs) x 60%

0 = 28.52%cs - [ (( 4.52% X 3,760,000) + 4.52%cs)x 60%]

0 = 0.2852cs - [(170,040 + 0.0452cs)x 0.6]

0 = 0.2852cs -102,024 - 0.02713404cs

102,024 = 0.2852cs - 0.02713404cs

102,240 = 0.25807 as the change in sales

Change in sales = 102,240 / 0.25807

Change in sales = 395,331.01

2002

A/So = 32.27%

Net Margin = 4.08%

Retention Rate = 60%

Current sales = 3,000,000

Efn = 0

Change in Sales = x

0 = [ 32.27% x cs] - 4.08% x ( 3,000,000 + cs) x 60%

0 = 32.27%cs - [ (( 4.08% X 3,000,000) + 4.08%cs)x 60%]

0 = 0.3227cs - [(122,400 + 0.0408cs)x 0.6]

0 = 0.3227cs -73,440 - 0.02448cs

73,440 = 0.3227cs - 0.02448cs

73,440 = 0.29819cs

Change in sales = 73,440 /0.29819

Change in sales =246,288.68

Growth Rate that can be supported with no external funds:

Year Growth Rate (%){change in sales/ Net income} Increase in Sales Increase in Internal Equity Internal Growth Rate (IGR)

2004 12.27% 148,134 148,134 12.27%

2003 10.51% 112,751 112,751 10.51%

2002 18.21% 79,469 79,469 18.21%

3. If the debt equity ratio is kept constant, Oats Ð²Ð‚?RÐ²Ð‚™ us will achieve a high rate of growth known as Sustainable growth rate =return on equity retention rate/1-(return on equityxretention rate)

Therefore

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