Suppose Barnsdale's financial consultants (see Problem ST-1) report (1) that the inventory turnover ratio is sales/inventory = 3 times versus an industry average of 4 times and (2) that Barnsdale could reduce inventories and thus raise its turnover to 4 without affecting sales, the profit margin, or the other asset turnover ratios. Under these conditions, use the AFN formula to determine the amount of additional funds Barnsdale would require during each of the next 2 years if sales grew at a rate of 20% per year.

Data From Problem ST-1

The Barnsdale Corporation has the following ratios: A*/S0 = 1.6; L*/S0 = 0.4; profit margin = 0.10; and dividend payout ratio = 0.45, or 45%. Sales last year were $100 million. Assuming that these ratios will remain constant, use the AFN formula to determine the maximum growth rate Barnsdale can achieve without having to employ nonspontaneous external funds.