AFN equation Broussard Skateboard's sales are expected to
increase by 25% from $8.8 million in 2015 to $11.00 million in
2016. Its assets totaled $4 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 forecasted to be 3%, and the forecasted payout
ratio is 65%. What would be the additional funds needed? Do not
round intermediate calculations. Round your answer to the nearest
dollar.
Answer a.
2015:
Sales = $8,800,000
Total Assets = $4,000,000
Profit Margin = 3.00%
Retention Ratio = 1 - Payout Ratio
Retention Ratio = 1 - 0.65
Retention Ratio = 0.35
Spontaneous Current Liabilities = Accounts Payable +
Accruals
Spontaneous Current Liabilities = $450,000 + $450,000
Spontaneous Current Liabilities = $900,000
2016:
Sales = $11,000,000
Addition to Retained Earnings = Sales * Profit Margin *
Retention Ratio
Addition to Retained Earnings = $11,000,000 * 3.00% * 0.35
Addition to Retained Earnings = $115,500
Increase in Total Assets = $4,000,000 * 0.25
Increase in Total Assets = $1,000,000
Increase in Spontaneous Current Liabilities = $900,000 *
0.25
Increase in Spontaneous Current Liabilities = $225,000
Additional Fund Needed = Increase in Total Assets - Increase in
Spontaneous Current Liabilities - Addition to Retained
Earnings
Additional Fund Needed = $1,000,000 - $225,000 - $115,500
Additional Fund Needed = $659,500
Answer b.
The capital intensity ratio is measured as A0*/S0. Broussard’s capital intensity ratio ($4,000,000/$8,800,000) is lower than that of the firm with $5 million ($5,000,000/$8,800,000) year-end 2015 assets; therefore, Broussard is more capital intensive - it would require a smaller increase in total assets to support the increase in sales.
AFN equation Broussard Skateboard's sales are expected to increase by 25% from $8.8 million in 2015...
AFN equation Broussard Skateboard's sales are expected to increase by 25% from $7.6 million in 2016 to $9.50 million in 2017. Its assets totaled $6 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...
AFN equation Broussard Skateboard's sales are expected to increase by 25% from $9.0 million in 2016 to $11.25 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...
AFN equation Broussard Skateboard's sales are expected to increase by 15% from $8.4 million in 2018 to $9.66 million in 2019. Its assets totaled $6 million at the end of 2018. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, 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...
Problem 12-02 AFN equation Broussard Skateboard's sales are expected to increase by 15% from $7.0 million in 2016 to $8.05 million in 2017. Its assets totaled $6 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...
AFN equation Broussard Skateboard's sales are expected to increase by 25% from $8.2 million in 2016 to $10.25 million in 2017. Its assets totaled $6 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...
Broussard Skateboard's sales are expected to increase by 25% from $8.8 million in 2016 to $11.00 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 6%,...
Problem 12-02 AFN equation Broussard Skateboard's sales are expected to increase by 15% from $7.0 million in 2016 to $8.05 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...
Problem 12-02 AFN equation Broussard Skateboard's sales are expected to increase by 20% from $8.4 million in 2016 to $10.08 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...
Broussard Skateboard's sales are expected to increase by 15% from $8.2 million in 2018 to $9.43 million in 2019. Its assets totaled $4 million at the end of 2018. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, 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%,...
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...