Question

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 $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 $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 65%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
($ )

Answer 1

Additional funds needed (AFN) = $262140

Explanation;

(Increase in Assets – Increase in accounts payable – Increase in accruals – Retained earnings)

Now, let’s calculate each item one by one;

Increase in Assets ($4000000 * 0.15) = $600000

Increase in accounts payable ($450000 * 0.15) = $67500

Increase in accruals ($450000 * 0.15) = $67500

Retained earnings ($9660000 * 0.06) (0.35) = $202860

Now, let’s calculate Additional funds needed (AFN);

AFN = $600000 – $67500 – $67500 – $202860

= $262140