Broussard Skateboard\'s sales are expected to increase by 25% from $8.4 million

Question

Broussard Skateboard's sales are expected to increase by 25% from $8.4 million in 2013 to $10.50 million in 2014. Its assets totaled $5 million at the end of 2013. Broussard 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 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

Explanation / Answer

Calculate the additional fund needed Here the sales increase by 25% Cuurent sales Forecasted sales Cuurent Assets Forecasted Assets (5*125%) Spontanious liabilities = Accounts payable+Accrued liabilities Spontanious liabilities = 450000+450000 Liabilities which vary directly with sales = 900000*125% After tax profit margin forecasted payout ratio AFN = (Forecased assets/Current sales)(Forecaseted sales-current sales)- (Liabilities which vary                directly with sales/Current sales)(Forecaseted sales-current sales)-Profit margin*Forecasted sales*Retention ratio AFN = (6250000/8400000)(10500000-8400000)- (1125000/8400000)(10500000-8400000)-5%*10500000*70% AFN = 1562500-281250-367500 AFN = $913,750

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