Broussard Skateboard\'s sales are expected to increase by 15% from $8 million in

Question

Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5 million at the end of 2013. Broussard 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 3%, and the forecasted payout ratio is 75%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.

Explanation / Answer

Sales expected in 2013                             = $9,200,000

After-tax profit margin (9,200,000*6%)             = $552,000

Dividend payments [$552,000*40%                    = $220,800

Addition to retained earnings [$552,000-$220,800   = $331,200

Increase in assets = $7,000,000*15%      1,050,000

Increase in liabilities = [$450,000+450,000]*15%   $135,000

AFN = Increase in assets

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