Question

AFN Equation

Broussard Skateboard's sales are expected to increase by 15% from $7.2 million in 2016 to $8.28 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

Additional Funds Needed = Increase in Assets - Increase in Spontaneous liabilities - Addition to retained Earnings from New Sales

Additional Funds Needed = $4 Million * 15% - (450000 + 450000) * 15% - ($8.28 Million * Profit Margin)

Additional Funds Needed = $600000 - 135000 - ($8.28 Million * 4%)

Additional Funds Needed = $600000 - 135000 - $331200

Additional Funds Needed = $133800

Notes payable will not change with the change in sales therefore it is not a spontaneous liability

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