Question

Booth's fixed assets were used to only 50% of capacity during 2018, 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 30%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

Answer 1

Answer:

AFN = $138

Explanation:

the accounts and balances are missing, so I looked for a similar question:

The Booth Company's sales are forecasted to double from $1,000 in 2010 to $2,000 in 2011. Here is the December 31, 2010, 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

AFN = (A/S) x (Δ Sales) - (L/S) x (Δ Sales) - (PM x FS x (1-d))

• A/S: $500 / $1,000 = 0.50
• ΔSales = $1,000  
• L/S = $250 / $1,000 = 0.25
• PM = 0.08
• FS = $2,000
• 1 - d = 1 - 30% = 0.70

AFN = (0.5 x $1,000) - (0.25 x $1,000) - (0.08 x $2,000 x 0.7) = $500 - $250 - $112 = $138