Broussard Skateboard\'s sales are expected to increase by 25% from $7.4 million

Question

Broussard Skateboard's sales are expected to increase by 25% from $7.4 million in 2013 to $9.25 million in 2014. Its assets totaled $2 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 55%.

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. Answer is NOT negative 0

Explanation / Answer

AFN = Increase in assets - Increase in spontaneous liabilities - Increase in retained earnigs

Increase in assets = $ 2 million x 25% = $ 500,000

Increase in spontaneous liabilities = $ ( $ 450,000 + $ 450,000) x 25% = $ 225,000

Increase in retained earnings = Sales x Profit margin x Retention ratio = $ 9,250,000 x 5% x ( 1-55%) = $ 208,125

AFN = $ 500,000 - $ 225,000 - $ 208,125 = $ 66,875

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