9-1 AFN Equation Broussard Skateboard\'s sales are expected to increase by 15% f

Question

9-1 AFN Equation Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2015 to $9.2 million in 2016. Its assets totaled $5 million at the end of 2015 Broussard 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 690, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Brous- sard' s additional funds needed for the coming year.

Explanation / Answer

Profit = 6% * 9200000 = 552000

Payout = 40% * 552000 =220800

Retention = 552000 - 220800 = 331200

Increase assets = 5000000 * 15% = 750000

Increase in payables = 450000 * 15% = 67500

Increase in accruals = 450000 * 15% = 67500

AFN = Increase assets - Increase in payables - Increase in accruals - Retention

       = 750000 - 67500 - 67500 - 331200 = 283800

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