Montreal Skaters Corp.collects 35% of its monthly sales immediately and the rest a month later.Its production costs are 65% of sales.It holds 1 month of sales in inventory, and it pays half its bills immediately and half after 30 days.What is this firm's break-even sales growth rate?

Question

Quizplus · Accepted Answer

The break-even sales growth rate is calculated by considering the cash flow timing of collections and payments. Since 35% of sales are collected immediately and 65% are collected a month later, and production costs are 65% of sales with half paid immediately and half a month later, the firm needs to grow sales by 56% to cover the cash flow gap created by the timing differences.