12-1 Broussard Skateboard’s sales are expected to increase by 12.65% from $7,926

Question

12-1 Broussard Skateboard’s sales are expected to increase by 12.65% from $7,926,800.00 in 2013 to $8,929,540.20 in 2014. Its assets totaled $10,145,900.00 at the end of 2013.
Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, current liabilities were $1,131,360.00, consisting of $362,410.00 of accounts payable, $378,020.00 of notes payable, and $390,930.00 of accruals. The after-tax profit margin is forecasted to be 6.92%, and the forecasted payout ratio is 37.85%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.

Explanation / Answer

In year 2014,

Additionalfund needed(AFN) = Projected increase in assets – spontaneous increase in liabilities – any increase in retained earnings.

Sales expected in 2014 =$8,929,540.20

After-tax profit margin = ($8,929,540.20*6.92%) = $ 617924.1818

Dividend payments [$617924.1818 * 37.85%] = $233,884.3028

Addition to retained earnings [$617924.1818 - $233,884.3028] = $384039.879

Increase in assets = $10,145,900.00 * 12.65%=$ 1283456.35

Increase in Liability = [ $362,410.00 + $378,020.00 ] * 12.65% = $ 93 664. 395

AFN = $ 1283456.35 - $ 93 664. 395 - $384039.879 = $ 805752.076.

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