Question

# AFN equation Broussard Skateboard's sales are expected to increase by 15% from \$8.4 million in 2019...

AFN equation

Broussard Skateboard's sales are expected to increase by 15% from \$8.4 million in 2019 to \$9.66 million in 2020. Its assets totaled \$5 million at the end of 2019.

Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2019, 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 75%. 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.

Spontaneous Current Liabilities = Accounts Payable + Accruals = \$450,000 + \$450,000 = \$900,000

Net Income = Sales * After-tax Profit Margin = \$9,660,000 * 0.06 = \$579,600

Addition to Retained Earnings = Net Income * (1 - Payout Ratio) = \$579,600 * (1 - 0.75) = \$144,900

Increase in Total Assets = 15% * \$5,000,000 = \$750,000

Increase in Spontaneous Current Liabilities = 15% * \$900,000 = \$135,000

Additional Funds Needed = Increase in Total Assets - Increase in Spontaneous Current Liabilities - Addition to Retained Earnings

Additional Funds Needed = \$750,000 - \$135,000 - \$144,900

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