Additional Funds Needed The Booth Company\'s sales are forecasted to double from
ID: 2648947 • Letter: A
Question
Additional Funds Needed
The Booth Company's sales are forecasted to double from $1,000 in 2012 to $2,000 in 2013. Here is the December 31, 2012, balance sheet:
Booth's fixed assets were used to only 50% of capacity during 2012, but its current assets were at their proper levels in relation to sales. Spontaneous liabilities and all assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 5% and its payout ratio to be 35%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.
Cash $ 100 Accounts payable $ 50 Accounts receivable 200 Notes payable 150 Inventories 200 Accruals 50 Net fixed assets 500 Long-term debt 400 Common stock 100 Retained earnings 250 Total assets $1000 Total liabilities and equity $1000Explanation / Answer
Additional fund needed= Increase in asset - increase in liabilities -increase in retained earnings
=1000-650-65
= $ 285
*increase in asset = Asset (2012) *sales growth rate
= 1000*100%
= $1000
sales growth rate= change in sales*100/ current sales
= 1000*100/1000 =100%
*Increase in liabilities = Liabilities(2012)*sales growth rate
=(50+150+50+400)*100%
= $650
*increase in retained earnings= 2013 sales* profit margin*retention ratio
= 2000*5% *65%
= $65
Retention ratio = (1 - payout ratio) = (1-.35)= .65 or 65 %
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