Question

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 $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 be 7%, and the forecasted payout ratio is 55%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$ ???

Assume that an otherwise identical firm had $6 million in total assets at the end of 2016. The identical firm's capital intensity ratio (A₀*/S₀) is:

a) higher than

b) lower than

c) equal to

Item 2  than Broussard's; therefore, the identical firm is:

a) less

b) more

c) the same

Item 3 capital intensive - it would require:

a) a smaller

b) a larger

c) the same

Item 4  increase in total assets to support the increase in sales.

Answer 1

solution: Part a: AFN = ((AO/So) (S1-so)) - ((LO/S0) X (S1-50)) - (M)(1)(b) M=Profit margin b=retention ratio = 1- payout ratio = 1-0.55 SO-current level of sales S1=expected level of sales AO-current level of asset LO= current level of spontaneous liability ==450000+450000 0.07 0.45 7000000 8050000 5000000 900000 AFN=((5000000/7000000)*(8050000-7000000))-((900000/7000000)*(8050000-7000000))-0.07*8050000*0.45 361425 511425 Part b: Assume that an otherwise identical firm had $ 6 million in total assets at the end of 2016. AFN=((6000000/7000000)*(8050000-7000000))-((900000/7000000)*(8050000-7000000))-0.07*8050000*0.45 The identical firm's capital intensity ratio (A.*/s.) is: a) higher than than Broussard's; therefore, the identical firm is: b)more capital intensive - it would require: b) a larger increase in total assets to support the increase in sales.