AFN Equation Broussard Skateboard\'s sales are expected to increase by 25% from
ID: 2466004 • Letter: A
Question
AFN Equation Broussard Skateboard's sales are expected to increase by 25% from $9.0 million in 2013 to $11.25 million in 2014. Its assets totaled $4 million at the end of 2013. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar. $ -0.025 Why is this AFN different from the one when the company pays dividends? I. Under this scenario the company would have a higher level of retained earnings which would increase the amount of additional funds needed. II. Under this scenario the company would have a higher level of retained earnings but this would have no effect on the amount of additional funds needed. III. Under this scenario the company would have a lower level of retained earnings which would reduce the amount of additional funds needed. IV. Under this scenario the company would have a lower level of retained earnings but this would have no effect on the amount of additional funds needed. V. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
Explanation / Answer
1
Calculation of Additional Financial Need:
Given That:
Expected increase in sales
25%
Sales in 2013
$ 9,000,000
Expected Sales in 2014
$ 11,250,000
Total Assets in 2013
$ 4,000,000
Given that: its assets must grow at the same rate as projected sales
Hence,
Expected Increase in Assets in 2014 = 4000000*25% = (A)
$ 1,000,000
Expected Increase in Profit Margin in 2014 = Increase in sales * Profit % = 2250000*6% (B)
$ 135,000
Expected Increase in Current Liabilities in 2014 = Increase in sales *( CL / Sales)= 2250000*(1400000 / 9000000) (C)
$ 350,000
Expected Increase in accruals in 2014 = Increase in sales *( Accrual / Sales)= 2250000*(450000 / 9000000) (D)
$ 112,500
Additional Fund needed for the year 2014 = A-B-C-D
$ 402,500
2
Why is this AFN different from the one when the company pays dividends?
V. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
1
Calculation of Additional Financial Need:
Given That:
Expected increase in sales
25%
Sales in 2013
$ 9,000,000
Expected Sales in 2014
$ 11,250,000
Total Assets in 2013
$ 4,000,000
Given that: its assets must grow at the same rate as projected sales
Hence,
Expected Increase in Assets in 2014 = 4000000*25% = (A)
$ 1,000,000
Expected Increase in Profit Margin in 2014 = Increase in sales * Profit % = 2250000*6% (B)
$ 135,000
Expected Increase in Current Liabilities in 2014 = Increase in sales *( CL / Sales)= 2250000*(1400000 / 9000000) (C)
$ 350,000
Expected Increase in accruals in 2014 = Increase in sales *( Accrual / Sales)= 2250000*(450000 / 9000000) (D)
$ 112,500
Additional Fund needed for the year 2014 = A-B-C-D
$ 402,500
2
Why is this AFN different from the one when the company pays dividends?
V. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.