Question

Broussard Skateboard's sales are expected to increase by 25% from $8.4 million in 2016 to $10.50 million in 2017. Its assets totaled $6 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 3%, and the forecasted payout ratio is 70%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

Assume that an otherwise identical firm had $7 million in total assets at the end of 2016. The identical firm's capital intensity ratio (A₀*/S₀) is -Select-higher than, lower than, equal to than Broussard's; therefore, the identical firm is -Select-less, more, the same capital intensive - it would require -Select-a smaller, a larger, the same increase in total assets to support the increase in sales.

Answer 1

*Any doubt please comment

Assets linked to sales	6,000,000
Spontaneous liabilities that are affected by sales	900,000	450,000+450,000
Previous years sales	8,400,000
Total projected sales for next year	10,500,000
Change in sales	2,100,000
Projected net income	315000	[10,500,000*3%]
Retention ratio	30.0%	[1-70%]
AFN	1,180,500	[(6,000,000/8,400,000)*2,100,000-(900,000/8,400,000)*2,100,000-10,500,000*3%*30%]

b. Blank 1 - lower

Blank 2 - less

Blank 3 - a larger