Carlsbad Corporation\'s sales are expected to increase from $5 million in 2016 t
ID: 2821546 • Letter: C
Question
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to S6 million in 2017, or by 20% Its assets totaled S6 million at the end o 2016 Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of S250,000 of accounts payable $500,000 of notes payable, and S250 000 of accrued liabilities. Its profit margin is forecasted to be 6% and the forecasted retention ratio is 30% Use the AFN equation to forecast Carlsbad's additional funds needed for the coming year. write out your answer completely. For example 5 million should be entered as 5,000,000. Round your answer to the nearest cent Now assume the company's assets totaled $4 million at the end of 2016. Is the company's "capital intensity" the same or different comparing to initial situation? -Select-Explanation / Answer
The additional funds needed is :
according to the AFN formula:
A0 * change in sales /orginal sales - L0 * change in sales/orginal sales - sales in 2017 * profit margin * retention ratio.
= 6,000,000 *20% - 1,000,000 * 20% - $6,000,000* 6%* 30%
=$1200000 - $200000 - $108000
=$892000
so, the additional funds needed are $892000 to financ ethe current level of sales.
capital intensity refers to the efficiency with which the assets of the company are utilized,
cpaital intensity in 2016 is :$4,000,000/5,000,000 = 80%
in 2017 : $4,80,0000/6,000,000= 80%
the capital intensity is the same for both the years.