*(12-3) Broussard Skateboard\'s sales are expected to increase by 20% from $8.6
ID: 2645310 • Letter: #
Question
*(12-3) Broussard Skateboard's sales are expected to increase by 20% from $8.6 million in 2013 to $10.32 million in 2014. Its assets totaled $5 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 4%. 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.
Explanation / Answer
Sales Expected in 2014 10,320,000 After tax profit margin 412,800 = 10,320,000 x 4% All the profits after the payment of dividend will be an addition to retained ?earnings. As the assets are already at full capacity, all the assets should grow at the sales rate. It is to be noted that if the assets were not at full capacity, only the spontaneous assets would increase. Increase in assets 750,000 =5,000,000 x 0.15 Increase in Liablities 135,000 =(450,000 + 450,000) x 0.15 For current liabilities, only the accounts payable and accruals are treated as?spontaneous liabilities. Notes payable is not considered spontaneous for AFN calculation.?AFN = Increase in assets Increase in liabilities Addition to retained earnings 202,200 =750,000 - 135,000 - 412,800 Answer $ 202,200
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