Beasley Industries\' sales are expected to increase from $5 million in 2013 to $

Question

Beasley Industries' sales are expected to increase from $5 million in 2013 to $6 million in 2014, or by 20%. Its assets totaled $2 million at the end of 2013. Beasley is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2013, current liabilities are $780,000, consisting of $160,000 of accounts payable, $400,000 of notes payable, and $220,000 of accrued liabilities. Its profit margin is forecasted to be 4%, and its dividend payout ratio is 70%. Using the AFN equation, forecast the additional funds Beasley will need for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.
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Explanation / Answer

Additional Fund needed (ANF)=A*(dS/So)-L*(dS/So)-Projected Income*retention ratio

dS=Change in sales, So=Initial Sales ,A=Asset, L=Liabilities

dS/So=0.2

Projected Income=Sales in 2014*Profit margin=6*0.04=0.24

Retention ratio=1-dividend payout ratio=1-0.7=0.3

Additional Fund needed (ANF)=2*0.2-0.78*0.2-0.24*0.3=0.172

Thus Additional Fund needed (ANF)=$0.172M=$172,000

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