Question

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 8% and its payout ratio to be 50%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar. $

Answer 1

Addition to retained earnings = forecast sales*profit margin*retention ratio = 2,000*8%*50% = 80

	Current (2016)		Forecast (2017)
Cash	100	Doubles	200
A/C receivable	200	Doubles	400
Inventory	200	Doubles	400
Net fixed assets	500	No change	500
Total assets	1,000		1,500
A/C payable	50	Doubles	100
Notes payable	150		150
Accruals	50	Doubles	100
L-T debt	400	No change	400
Common stock	100	No change	100
Retained earnings	250	Addition of 80	330
Total liabilities & equity	1,000		1,180

Additional Funds Needed (AFN) = Total assets - Total liabilities & equity = 1,500 - 1,180 = 320