Broussard Skateboard\'s sales are expected to increase by 15% from $7.4 million

Question

Broussard Skateboard's sales are expected to increase by 15% from $7.4 million in 2015 to $8.51 million in 2016. Its assets totaled $5 million at the end of 2015. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2015, 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 3%, and the forecasted payout ratio is 60%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

Explanation / Answer

2015

2016

1

Sales

$7.4 m

8.51

2

Currents Assets

$4.0 m

4.6

3

Current Liabilities

$1.4 m

3a

       A/c Payables

$.45 m

3b

      Notes Payables

$.50m

3c

       Accurals

$.45 m

4

Working Capital ( 2-3)

$ 2.6m

5

Profit After tax @ 3% of sales

$ 0.222 m

6

Total funds available for 2016(4+5)

$ 2.822m

Additional Funds Needed = Current Level of Assets*% Change in Sales - Current Level of Liabilities*%Change in Sales - Increase in Sales*Profit Margin*Retention Ratio

Additional Funds Needed = 4*15% - 1.4*15% - (8.51 - 7.4)*3%*70%

                                              = .36669 or $366690

Answer is= .3669million or $366690

2015

2016

1

Sales

$7.4 m

8.51

2

Currents Assets

$4.0 m

4.6

3

Current Liabilities

$1.4 m

3a

       A/c Payables

$.45 m

3b

      Notes Payables

$.50m

3c

       Accurals

$.45 m

4

Working Capital ( 2-3)

$ 2.6m

5

Profit After tax @ 3% of sales

$ 0.222 m

6

Total funds available for 2016(4+5)

$ 2.822m

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