Question

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%, and the forecasted payout ratio is 55%. What would be the additional funds needed?

Assume that an otherwise identical firm had $5 million in total assets at the end of 2016. Broussard's capital intensity ratio (A0*/S0) is greater than, less than, or equal to the otherwise identical firm?; therefore, Broussard is less, more, or equal to capital intensive? - it would require a larger, smaller, or equal increase in total assets to support the increase in sales?

Answer 1

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Home nert Page Layout Formulas Data Review View dd-Ins as Cut Σ AutoSum ー E " ゴWrap Text copy ▼ в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & 2 ClearFe Select Editing Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard Alignment Number Cells 1603 591 INCREASE IN SALES (%)-25% 592 PROFIT MARGIN = 6% 593 594 595 596 597 598 599 DIVIDEND PAYOUT-55% RETENTION RATIO = 45% 1 INCREASE IN ASSETS NECESSARY TO SUPPORT INCREASE IN SALES INCREASE IN SALES X TOTAL ASSETS 25% X 4000000 1000000 2 INCREASE IN LIABILITIES NECESSARY TO SUPPORT INCREASE IN SALES INCREASE IN SALES X TOTAL ASSETS ACCOUNTS PAYABLE ACCRUED LAIBILITIES +OTHER PAYABLES 2596 X 900000 225000 3 PROFIT MARGIN=6% 601 602 603 NET INCOME SO ADDITION TO RETAINED EARNINGS = 45% 11000000X 6% 660000 297000 4 AFN = INCREASE IN ASSETS-INCREASE IN LABILTIES-INCREASE IN RETAINED EARNINGS 605 ANS AFN 1-2-3 478000 BROUSSARD'S CAPITAL INTENSITY RATIO IS LOWER THAN OTHERWISE IDENTICAL FIRM THEREFORE BROUSSARD IS LESS CAPITAL INTENSIVE IT WOULD REQUIRE SMALLER INCREASE IN TOTAL ASSETS 607 608 トト YIELD SPOT . Sheet2 AFN BANKING NOTE BIDDING, UNDERWRITING EUAC AW PM LIFE L 1 MRP. INFLATION YIELD WARRANT efund bond CLEAN INVOICE PRICE - erences: 1198 福 130% 29-01-2019