Question

Broussard Skateboard's sales are expected to increase by 20% from $7.4 million in 2018 to $8.88 million in 2019. Its assets totaled $5 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 40%. 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.

Answer 1

Last year

Total Sales = 7.4 mnn

Total Assets = 5 mn

Total Liabilites = 1400,000 - Notes Payable = 900,000

New This year

increase required = 20%

Retained Earnings = 60%

Profit margin = 3%

Increase in Assets required = 5,000,000 * 20% = 1,000,000

Incrase in liabilities = 900,000 * 20% = 180,000

Net Income = Sales * Profit Margin

= 8,880,000 * 0.03

= 266,400

Retained Earnings = 266400 * 60% = 159840

AFN = Increase in Assets - Increase in Liability - Retained Earnings

= 1000,000 - 180,000 - 159840

= 660,160