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 2015 to $9.25 million in 2016. Its assets totaled $4 million at the end of 2015. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2015, 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 4%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar.

Explanation / Answer

Additional Funds Needed = (Ao÷So)×S (Lo÷So)×S- S1 × PM × b

= (Ao÷So)×S (Lo÷So)×S- S1 × PM × b

= ($4÷$7.4)×($1.85)-($0.95÷$7.4)×($1.85)-$7.4×125%×5%

= $0.3925 million

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