Question

Broussard Skateboard's sales are expected to increase by 25% from $9.0 million in 2016 to $11.25 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, 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 7%, and the forecasted payout ratio is 65%. 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 1

Sales of broussard iin 2016 9,000,000
Total Assets atbthe end of 2016 4000000
Profit Margin = 7%

Retention Ratio = 1 - Payout Ratio
Retention Ratio = 1 - 0.65
Retention Ratio = 0.35

Current Liabilities payable within an year= Accounts Payable + Accruals
Current Liabilities payable within an year= 450,000 + 450,000
Current Liabilities within an year = $900,000

2017:

Sales = 11,250,000

Addition in retained earnings is sales* After tax profit margin* retention ratio
Addition to Retained Earnings = 11,250,000 * 7% * 0.35
Addition to Retained Earnings = 275625

Increase in Total Assets = 4,000,000 * 0.35
Increase in Total Assets = 1,400,000

Increase in Current Liabilities payable within an hear= 900,000 * 0.35
Increase in Current Liabilities = 315000

Additional Fund Needed = Increase in Total Assets - Increase in Current Liabilities payable within an year- Addition to Retained Earnings

Additional Fund Needed = 1400000-315000-275625
Additional Fund Needed = 809375