Question: use question 5 to answer 6

5. (Sales Growth Rates, Sales and Profits) Petal Providers Corporation opens and operates "mega: flora stores in the US. The idea behind the superstore concept is to model the u.s. floral industry after its European counterparts, whose flowers markets generally have larger selections at lower prices. Revenues were $1 million with net profit of $50,000 last year when the first petal Providers floral outlet was opened. If the economy grows rapidly next year, Petal Providers expect its sales to grow by 50 percent. however if the economy exhibits average growth, Petal Providers expects a sales growth of 30 percent. For a slow economic growth scenario, sales are expected to grow next year at a rate of 10 percent. Management estimates the probability of each scenario occuring to be rapid growth (0.30), average growth(0.50), and slow growth (0.20). Petal Provider' net profit margins are also expected to vary with the level of economic activity next year. If slow growth occurs, the net profit margin is expected to be 5 percent. Net profit margin of 7 and 10 percent are expected for the average- and rapid growth scenarios, respectively

6. (Sustainable Sales Growth Rate) Petal Providers Corporation, described in Problem 5, is interested in estimating its sustainable sales growth rate. Late year, revenues were $1 million: net profits was $50,000, investment in assets was $750,000, parables and accruals were $100,000 and stockholders' equity at the end of the year was $450,000 (i.e. beginning-of-year equity of $400,000 plus retained profits of $50,000). The venture did not pay out any dividends and does not expect to pay dividends for the foreseeable future.