The Booth Company\'s sales are forecasted to double from $1,000 in 2012 to $2,00

Question

The Booth Company's sales are forecasted to double from $1,000 in 2012 to $2,000 in 2013. Here is the December 31, 2012, balance sheet:

Booth's fixed assets were used to only 50% of capacity during 2012, but its current assets were at their proper levels in relation to sales. Spontaneous liabilities and all assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 5% and its payout ratio to be 40%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

Cash $100 Accounts payable $50 Accounts receivable 200 Notes payable 150 Inventories 200 Accruals 50 Net fixed assets 500 Long-term debt 400 Common stock 100 Retained earnings 250 Total assets $1,000 Total liabilities and equity $1,000

Explanation / Answer

Additional funds needed=Required asset increase- Spontaeous liability increase-increase retained earning

AFN=(A*/SO)CHANGE IN S-(L*/SO)CHANGE IN S)-MSI(1-PAYOUT RATIO)

AFN=$500-$100-$40

AFN=$360

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