Question

Broussard Skateboard's sales are expected to increase by 25% from $8.6 million in 2016 to $10.75 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 4%, and the forecasted payout ratio is 75%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year.

Answer 1

the additional funds needed is $667,500

Step-by-step explanation:

The computation of the additional funds by using AFN is shown below:

AFN is

= Increase in assets - increase in liabilities - addition to retained earnings

= ($4,000,000×25%) - ($900,000 × 25%) - 10,750,000 × .04( 1 - 0.75)

= $1,000,000 - $225,000 - $107,500

= $667,500

hence, the additional funds needed is $667,500

We simply applied the above formula so that the correct value could come

And, the same is to be considered