4. Winter Snowboard Inc. sales are expected to increase 10% in 2019 from $15 million in 2018. Its assets at the end of 2018 were $5 million. The company is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $2.0 million, consisting of $400,000 of accounts payable, $1,000,000 of notes payable, and $600,000 of accruals. The after-tax profit margin is forecasted to be 4%, and the forecasted payout margin is 60%. What are the additional funds needed in 2019?

Question

Guillermo Gutierrez

Business

5 May, 15:15

4. Winter Snowboard Inc. sales are expected to increase 10% in 2019 from $15 million in 2018. Its assets at the end of 2018 were $5 million. The company is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $2.0 million, consisting of $400,000 of accounts payable, $1,000,000 of notes payable, and $600,000 of accruals. The after-tax profit margin is forecasted to be 4%, and the forecasted payout margin is 60%. What are the additional funds needed in 2019?

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Kingston Mosley · Answer 1

The additional funds needed in 2019 is $36,000

Explanation:

Sales in 2019 = $15,000,000 * 1.10 = $16,500,000

Increase in sales = 10% * 15,000,000 = $1,500,000

Assets in 2019 = $5,000,000 * 1.1 = $5,500,000

Assets / Sales = $5,500,000 / $16,500,000 = 0.3333

Liabilities / Sales = $2,000,000 / $15,000,000 = 0.1333

After tax profit margin = 4% = Profit after tax / Sales

Profit after tax / $16,500,000 = 4%

Profit after tax = 4% * $16,500,000 = $660,000

Dividend = 60% * $660,000 = $396,000

Retained profit = (1 - 60%) * $660,000 = $264,000

Funds needed = (0.3333 * $1,500,000) - (0.1333 * $1,500,000) - $264,000 = $36,000