Atlantic Transport collects 75 percent of its monthly sales immediately and the rest at the end of the month; has production costs that are 50 percent of sales; pays 50 percent of its bills immediately and the rest at the end of the month; and has four months of sales in inventory.
a. Calculate the break-even sales growth rate.
b. Suppose that Atlantic Transport adopts a more efficient inventory policy that reduces the size of its inventory to three months of sales. Atlantic Transport also reduces its production costs to 40 percent of sales. What is the new break-even sales growth rate?