Broussard Skateboard\'s sales are expected to increase by 25% from $7.8 million

Question

Broussard Skateboard's sales are expected to increase by 25% from $7.8 million in 2016 to $9.75 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, 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%, and the forecasted payout ratio is 75%. 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

1. Computation of Additional Funds Needed

Sales Expected = $9750000

After Tax Profit Margin = $9750000 * 6% = $585000

Addition to Retained Earnings = $585000 * 0.25 = $146250

Increase in Assets = Assets in 2016 * Sales Growth Rate = $4000000 * 25% =$1000000

Increase in Liabilities = [$450000 + $450000] * 25% = $225000

AFN = Increase in Assets - Addition to Retained Earnings - Increase in Liabilities

AFN = $1000000 - $225000 - $146250 = $628750

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.