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Problem 12-06 Additional Funds Needed The Booth Company's sales are forecasted to double from $1,000 in...

Problem 12-06 Additional Funds Needed The Booth Company's sales are forecasted to double from $1,000 in 2016 to $2,000 in 2017. Here is the December 31, 2016, balance sheet: Cash $ 100 Accounts payable $ 50 Accounts receivable 200 Notes payable 150 Inventories 200 Accruals 50 Net fixed assets 500 Long-term debt 400 Common stock 100 Retained earnings 250 Total assets $1000 Total liabilities and equity $1000 Booth's fixed assets were used to only 50% of capacity during 2016, but its current assets were at their proper levels in relation to sales. All assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 5% and its payout ratio to be 70%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

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Expert Solution

Calculation of Booth's additional funds needed for the coming year
Additional Funds Needed = Increase in Fixed assets + Increase in current assets - Increase in Accounts Payable & Accruals - Increase in Retained earnings
Sales Growth % = Increase in sales / 2016 Sales = $1000/$1000 = 100%
Increase in Fixed assets = 2016 Fixed assets x Sales growth in excess of full capacity
Increase in Fixed assets = $500 x 50% = $250
Increase in current assets = 2016 Current assets x Sales growth %
2016 Current assets = Cash + Accounts Receivable + Inventories = $500
Increase in current assets = $500 x 100% = $500
Increase in Accounts Payable & Accruals = 2016 Accounts Payable and accruals x Sales growth %
Increase in Accounts Payable & Accruals = $100 x 100% = $100
Increase in retained earnings = 2017 Sales x Profit Margin % x (1 - payout ratio)
Increase in retained earnings = $2000 x 5% x (1-0.70) = $30
Additional Funds Needed = $250 + $500 - $100 - $30
Booth's Additional Funds Needed for the coming year = $620

jeff jeffy answered 1 year ago
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