Winter Snowboard Inc. sales are expected to increase 10% in 2014 from $15 millio

Question

Winter Snowboard Inc. sales are expected to increase 10% in 2014 from $15 million in 2013. Its assets at the end of 2013 were $5 million. The company is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, current liabilities were $2.0 million, consisting of $400,000 of accounts payable, $1,000 of notes payable, and $600,000 of accruals. The after-tax profit margin is forecasted to be 4%, and the forecasted payout margin is 60%. What are the additional funds needed in 2014?

Please explain in detail so that it is easy for me to understand.

Thank you

Explanation / Answer

Answer:

AFN= (A*/S0)S - (L*/S0)S - MS1(1 - d)

=(5,000,000/15,000,000)*1500,000-(1000,000/15,000,000)*1500,000-0.04*1650,0000(1-0.60)

=$500000-$100000-$264000

=$136000

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