Question

Broussard Skateboard's sales are expected to increase by 15% from $8.0 million in 2016 to $9.20 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 4%. 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.

Answer 1

Sales in year 2016 = $8.0 million

sales expected to be in year 2017 = $9.2 million (15 % increase from last year)

Asset total in 2016 = $ 4 Million

Assets expected to grow at 15 % in 2017, Hence total increase in asset in 2017 = 4x 15 % = 0.60 Million Dollar worth

Current liabilities in 2016 = $1.4 Million

after tax profit margin = PAT/ Net sales = 4%

Profit after tax (PAT) IN 2017 = 0.04 * 9.2 Million Dollar = 368000 Dollar = 0.368 Million Dollar

Now Since increment in assets are projected to be 0.6 Million Dollar , henec additional fund required is = 0.6-0.368

= 0.232 Million Dollar