Problem 12-6 Additional Funds Needed The Booth Company\'s sales are forecasted t
ID: 2629950 • Letter: P
Question
Problem 12-6
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 3% and its payout ratio to be 55%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar. Please provide step by step calculations so I can learn. Your AFN is wrong. In my text it says that the calculation for AFN = Increase in assets - increase in liabilities - addition to retained earnings. Please provide calculations as to how you got your figures. Thank you.
$ ________________
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
Hi
This might helpful to you. Doesn't answer your exact question, just for info I copied here..
(14-8) At year end 2004 , total assets for Bertin Inc. were $1.2 million and accounts by payable were $375.000 sales , which in 2004 were $2.5 million , are expected to increase by 25 percent in 2005. Total assets and accounts payable are propor tional to sales and that relationship will be maintained. Bertin typically uses no current liabilities other than accounts payable. Common stock amounted to $425.000 in 2004, and retained earnings were $295.000 Bertin plans to sell new common stock in the amount of $75.000 The firm's profit margin on sells is 6 percent; 40 percent of earning will be paid out as dividends.
a. what was Bertin's total dept in 2004 ?
b. how mush new , long term dept financing will be needed in 2005? (Hint :AFN New stock = New long term dept.) Do not consider any financed feedback effects.
Cash $100 Accounts payable $50
Accounts receivable 200 Notes payable 150
Inventories 200 Accruals 50
Net fixed assets 500 Long term debt 400
100 Common stock
250 Retained earnings
Total assets $1.000 Total liabilities and equity $1.000
Booth's fixed assets were used to only 50 percent of capacity during 2004, but is current assets were at their ropor levels . All assets except fixed assets increase at the same rate as sales , and fixed assets would also increase at the same rate if the current excess capacity did not exist. Booth after tax profit margin is forecasted to be 5 percent, and its payout ratio will be 60 percent . what is Booth's additional fund's needed (AFN) for the coming year ?
14-8 a.
$1,200,000 = $375,000 + Long-term debt + $425,000 + $295,000
Long-term debt = $105,000.
Total debt = Accounts payable + Long-term debt
= $375,000 + $105,000 = $480,000.
Alternatively,
Total debt = - Common stock - Retained earnings
= $1,200,000 - $425,000 - $295,000 = $480,000.
b. Assets/Sales (A*/S) = $1,200,000/$2,500,000 = 48%.
L*/Sales = $375,000/$2,500,000 = 15%.
2002 Sales = (1.25)($2,500,000) = $3,125,000.
AFN = (A*/S)(?S) - (L*/S)(?S) - MS1(1 - d) - New common stock
= (0.48)($625,000) - (0.15)($625,000) - (0.06)($3,125,000)(0.6) - $75,000
= $300,000 - $93,750 - $112,500 - $75,000 = $18,750.
Alternatively, using the percentage of sales method:
Forecast
Basis % Additions (New
2004 2005 Sales Financing, R/E) Pro Forma
Total assets $1,200,000 0.48 $1,500,000
Current liabilities $ 375,000 0.15 $ 468,750
Long-term debt 105,000 105,000
Total debt $ 480,000 $ 573,750
Common stock 425,000 75,000* 500,000
Retained earnings 295,000 112,500** 407,500
Total common equity $ 720,000 $ 907,500
Total liabilities
and equity $1,200,000 $1,481,250
AFN = Long-term debt = $ 18,750
*Given in problem that firm will sell new common stock = $75,000.
**PM = 6%; Payout = 40%; NI2005 = $2,500,000 x 1.25 x 0.06 = $187,500.
Addition to RE = NI x (1 - Payout) = $187,500 x 0.6 = $112,500.