Broussard Skateboard's sales are expected to increase by 25% from $8.4 million in 2016 to $10.50 million in 2017. Its assets totaled $3 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 4%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar.
AFN = Increase in total assets - Increase in liabilities - Addition to retained earnings
Increase in total assets = Assets * Growth rate = 3000000 * 25% = 750000
Spontaneous liabilities = Accounts payable + accruals = 450000 + 450000 = 900000
Increase in spontaneous liabilities = 900000 * growth rate = 900000 * 25% = 225000
Increase in retained earnings = Profit margin * retention ratio * forecasted sales
= 4% * (100% -0%) * 10500000
= 420000
AFN = 750000 - 225000 - 420000
= 105000
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Problem 9-1 AFN equation Broussard Skateboard's sales are
expected to increase by 20% from $9.0 million in 2015 to $10.80
million in 2016. Its assets totaled $3 million at the end of 2015.
Broussard is already at full capacity, so its assets must grow at
the same rate as projected sales. At the end of 2015, 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...
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