3 Broussard Skateboard\'s sales are expected to increase by 15% from $7.4 millio

Question

3 Broussard Skateboard's sales are expected to increase by 15% from $7.4 million in 2013 to $8.51 million in 2014. Its assets totaled $4 million at the end of 2013. Baxter 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 $1.4 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%. 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.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Additional Funds Needed = Current Level of Assets*% Change in Sales - Current Level of Liabilities*%Change in Sales - Increase in Sales*Profit Margin*Retention Ratio

Additional Funds Needed = 4*15% - 1.4*15% - (8.51 - 7.4)*3%*100% = .3567 or $356700

Answer is .3567million or $356700 (It Can be $357000 also depending on rounding off).

Thanks.

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