Question

Problem 9-6
Additional Funds Needed

The Booth Company's sales are forecasted to double from $1,000 in 2015 to $2,000 in 2016. Here is the December 31, 2015, 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 2015, 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 4% and its payout ratio to be 40%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

$ __________

Answer 1

Balance Sheet
	2015	2016
ASSETS
Cash	$                  100	$              200
Accounts Receivable	$                  200	$              400
Inventory	$                  200	$              400
Net Fixed Assets	$                  500	$              500
Total Assets	$               1,000	$           1,500
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts Payable	$                    50	$              100
Notes Payable	$                  150	$              150
Accruals	$                    50	$              100
Long-term Debt	$                  400	$              400
Common Stock	$                  100	$              100
Retained earnings(Note)	$                  250	$              298
Total Liabilities and Stockholder's Equity	$               1,000	$           1,148
Additional Financial Needs(AFN) =$1,500 - $1,148 =$352
Note:
After-Tax Profit =$2,000*4% =$80
Retained Profit =$80*(1-0.40) =$48
Retained earnings as on Dec 31,2016 =$250+$48 =$298