Please answer all of the following questions correctly. AFN equation Broussard S

Question

Please answer all of the following questions correctly.

AFN equation Broussard Skateboard's sales are expected to increase by 25% from $8.0 million in 2015 to $10.00 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 3%, 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

1) AFN = INCREASE IN ASSETS-INCREASE IN SPONTANEOUS LIABILITIES-INCREASE IN RETAINED EARNINGS = 5000000*25%-(450000+450000)*25%-10000000*3%*30% = $       935,000 2) = 5000000*25%-(450000+450000)*25%-10250000*7%*35% = $       773,875 3) The capital intensity ratio will be different. 3/8 = 0.375 and 5/8 = 0.625 4) All the options are wrong: The capital intensity ratio is higher; more capital invensive and would require larger increase in total assets to support the increase in sales. 5) AFN = = 3000000*20%-(450000+450000)*20%-8400000*4% = $         84,000 6) Option V.

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