Problem 12-01 AFN equation Broussard Skateboard\'s sales are expected to increas
ID: 2796355 • Letter: P
Question
Problem 12-01
AFN equation
Broussard Skateboard's sales are expected to increase by 20% from $8.4 million in 2016 to $10.08 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, 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 6%, and the forecasted payout ratio is 65%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.
Explanation / Answer
AFN = (A*/S0)S – (L*/S0) S – M(S1)(RR) = $408,320
A* $ 4,000,000 All Assets $ Dollars S0 $ 8,400,000 Sales 0 $ Dollars S $ 1,680,000 S1 - S0 $ Dollars L* $ 900,000 AP + Accurals $ Dollars M 6.0% Profit Margin % S1 $ 10,080,000 Sales 1 $ Dollars RR 35.0% Retention Ratio % Fund Reqd $ 800,000.00 Spontaneous $ 180,000.00 Retained $ 211,680.00 AFN $ 408,320.00