Broussard Skateboard's sales are expected to increase by 20% from $7.6 million in 2015 to $9.12 million in 2016. Its assets totaled $5 million at the end of 2015. Baxter 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 6%. 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. $
Why is this AFN different from the one when the company pays dividends?
I. Under this scenario the company would have a lower level of retained earnings which would reduce the amount of additional funds needed.
II. Under this scenario the company would have a lower level of retained earnings but this would have no effect on the amount of additional funds needed.
III. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
IV. Under this scenario the company would have a higher level of retained earnings which would increase the amount of additional funds needed.
V. Under this scenario the company would have a higher level of retained earnings but this would have no effect on the amount of additional funds needed.
Additional Funds Needed [AFN] for the coming year
Expected Next Year Sales = $9,120,000
After Tax profit Margin
After Tax profit Margin = Expected Next Year Sales x Profit Margin
= $9,120,000 x 6.00%
= $547,200
Additions to Retained Earnings
Here, the company is not paying any dividend for the year, therefore, the additions to the Retained Earnings will be $547,200
Increase in Total Assets
Increase in Total Assets = Total Assets x Percentage of Increase in sales
= $5,000,000 x 20%
= $1,000,000
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
= $1,000,000 - $180,000 - $547,200
= $272,800
“Hence, the additional funds needed for the coming year will be $272,800”
Reason for difference in the AFN from the one when the company pays dividends
(III). Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
Broussard Skateboard's sales are expected to increase by 20% from $7.6 million in 2015 to $9.12...
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. Baxter 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 5%....
Broussard Skateboard's sales are expected to increase by 25% from $7.6 million in 2018 to $9.50 million in 2019. Its assets totaled $3 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 3%....
Problem 9-3 AFN Equation Broussard Skateboard's sales are
expected to increase by 15% from $7.0 million in 2015 to $8.05
million in 2016. Its assets totaled $5 million at the end of 2015.
Baxter 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...
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 forecasted to...
AFN Equation Broussard Skateboard's sales are expected to increase by 20% from $7.2 million in 2016 to $8.64 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 25% from $9.0 million in 2016 to $11.25 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets m. 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 5%, and the forecasted payout ratio is 75%. What...
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $4 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 6%. Assume that...
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $2 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 4%. a. Assume...
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $2 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 4%. Assume that...
AFN EQUATION Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $2 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 4%....