Broussard Skateboard's sales are expected to increase by 20% from $9.0 million in 2016 to $10.80 million in 2017. Its assets totaled $4 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 7%, and the forecasted payout ratio is 55%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

Question

Zavier Schmitt

Business

29 October, 18:30

Broussard Skateboard's sales are expected to increase by 20% from $9.0 million in 2016 to $10.80 million in 2017. Its assets totaled $4 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 7%, and the forecasted payout ratio is 55%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

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Answers (1)

Know the Answer?

Emilio Ellison · Answer 1

AFN $ 0,180

Explanation:

Equation:

A0 x %Sales Inc. - L0 x %Sales Inc. - S1 x PM x b

$4,000 x 0,20 - $1,400x0,2 - 10,800x0,07x0,45 = $ 0,180

A0 = Current Level of Assets

L0 = Current Level of Liabilities

%Sales Inc. = Percentage Sales Increase

S1 = New Level of Sales

PM = Profit Margin

b = Retention Rate or 1 - Payout Rate

A0 4,000

L0 1,400

%Sales Inc 0,20

S1 10,800

PM 0,07

b 0,45

AFN $ 0,180