Question

• Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2016 to $9.2 million in 2017. Its assets totaled $5 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 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year

Answer 1

Answer:

AFN $ 2,169

Explanation:

Equation        

5,000 x 0,15 = 0,75

-1,400 x -1,25 = 1,75

-9,200 x 0,06 x 0,60 = -0,3312  

 AFN = $2,169

A0 (Current Level of Assets)      =         5,000

L0 ( Current Level of Liabilities) =  1,400

Var S (Percentage increase in Sales) =   0,15  

S1 (New level of Sales) =  9,200

PM (Profit Margin)  =  0,06  

b (Retention Rate)  =  0,60  

AFN  (Additional Funds Needed)  =  $ 2,169