y 20% from $8.4 million in 2016 to $10.08 million in 2017. Its assets totaled $5

Question

y 20% from $8.4 million in 2016 to $10.08 million in 2017. Its assets totaled $5 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 7%, 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

Where,
Ao = current level of assets
S/So = percentage increase in sales i.e. change in sales divided by current sales
Lo = current level of liabilities
S1 = new level of sales
PM = profit margin
b = retention rate = 1 – payout rate

AFN = 5*20% - 1.4*20%*10.08*7%*35%

= 0.9308512 million

= $ 930851.20

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