Problem 12-01 AFN equation Broussard Skateboard's sales are expected to increase by 20% from $8.0 million in 2016 to $9.60 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 7%, and the forecasted payout ratio is 60%. 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.
Broussard's Additional Funds Needed [AFN] for the coming year
Expected Next Year Sales = $9,600,000
After Tax profit Margin
After Tax profit Margin = Expected Next Year Sales x Profit Margin
= $9,600,000 x 7.00%
= $672,000
Dividend Pay-out
Dividend Pay-out = After Tax profit Margin x Dividend Pay-out Ratio
= $672,000 x 60%
= $403,200
Additions to Retained Earnings
Additions to Retained Earnings = After Tax profit Margin - Dividend Pay-out
= $672,000 - $403,200
= $268,800
Increase in Total Assets
Increase in Total Assets = Total Assets x Percentage of Increase in sales
= $3,000,000 x 20%
= $600,000
Increase in Spontaneous liabilities
Increase in Spontaneous liabilities = [Accounts Payable + Accruals] x Percentage of Increase in sales
= [$450,000 + $450,000] x 20%
= $900,000 x 20%
= $180,000
Additional Funds Needed [AFN]
Therefore, the Additional Funds Needed [AFN] = Increase in Total Assets – Increase in in Spontaneous liabilities – Additions to retained earnings
= $600,000 - $180,000 - $268,800
= $151,200
“Hence, Broussard's Additional Funds Needed [AFN] for the coming year will be $151,200”
Problem 12-01 AFN equation Broussard Skateboard's sales are expected to increase by 20% from $8.0 million...
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