AFN equation Broussard Skateboard\'s sales are expected to increase by 15% from

Question

AFN equation

Broussard Skateboard's sales are expected to increase by 15% from $7.0 million in 2016 to $8.05 million in 2017. Its assets totaled $6 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 3%, and the forecasted payout ratio is 65%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

Explanation / Answer

Additional Funds Needed [AFN] = $680,475

Calculations

Expected Sales = $8,050,000

After Tax profit Margin = = $8,050,000 x 3% = $241,500

Dividend Paid = $241,500 x 65% = $156,975

Therefore, Additions to retained earnings = $241,500 - $156,975 = $84,525

Increase In Assets = $60,00,000 x 15% = $900,000

Increase in Liabilities = [ $450,000 + 450,000 ] x 15% = $135,000

Additional Funds Needed [AFN]

= Increase in Assets – Increase in Liabilities – Additions to retained earnings

= $9,00,000 - $135,000 - $84,525

= $680,475

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