Question

1.

Broussard Skateboard's sales are expected to increase by 15% from $8.0 million in 2018 to $9.20 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%, and the forecasted payout ratio is 50%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar.

2.

A project has an initial cost of $40,000, expected net cash inflows of $8,000 per year for 10 years, and a cost of capital of 8%. What is the project's IRR? Round your answer to two decimal places.

Answer 1

Question -1;

Additional funds needed for the coming year = $177000

Explanation;

Additional funds needed for the coming year =

(Current level of assets * % increase in sales) – (Current level of liabilities * % increase in sales) – (New sales * Profit margin * Retention ratio)

Additional funds needed for the coming year =

($3000000 * 0.15) – ($900000 * 0.15) – ($9200000 * 0.03 * 0.5)

= $450000 – $135000 – $138000

= $177000

Question-2;

C19 2 Year Cash flows ($40,000) $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 0 2 4 10 9 12 13 10 14 IRR 15.10% IRR: (B3:813,10%)