Winter snowboard inc. sales are expected to increase 10% in 2014 from$15 million

Question

Winter snowboard inc. sales are expected to increase 10% in 2014 from$15 million in 2013. Its assets at the end of 2013 were $5 million. The company is at full capacity, so its assets muct grow at the same rate as projected sales. At the end of 2013, current liability were $2.0 million, consisting of $400000 of accounts payable, $1000000 of notes payable, and $600000 of accruals. The after- tax profit margin is forecasted to be 4%, and the forecasted payout margin is 60%. What are the additional funds needed in 2014.

Please show work in detail and Not from excel. Thank you.

Explanation / Answer

When sales increase assets must be increased. So, to maintain the required assets , additional fund may be procured.

At the end of 2014 increase in assets is .5 million. Retained earning in the year 2014 is .26 million. So additional fund needed = .5 Million-.26 MIllion =.24 Million

Note:

There may be possibility that current liability in the next year will be paid and assets reduced from 5 Million to 3 Million, but further it is to be noted there may be also possible that certain current liability may arise in the year 2014. So, in the absence of any inflormation about status of current liability in the 2014, we assumed that current liability is continue in next year too.

2013 2014 Sales 15.00 16.50 Assets 5.00 5.50 Current Liability 2.00 2.00 After tax profit 0.66 Payout margin 0.40 Retained earning 0.26

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