Broussard Skateboards sales are expected to increase by 25 f

Broussard Skateboard\'s sales are expected to increase by 25% from $7.2 million in 2016 to $9.00 million in 2017. Its assets totaled $3 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 3%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar.

Solution

1. Computation of AFN

Sales Expected in 2017 = $9000000

After Tax Profit Margin = $270000

Dividend Payments = 0

Additiona to Retained Earnings = $270000

Increase in Assets = $750000 ($3000000 * 0.25)

Increase in Liabilities = $225000 (Notes Payable is Not Considered) ( $900000 * 0.25)

AFN = Increase in Assets - Increase in Liabilities - Increase in Retained Earnings

AFN = $750000 - $225000 - $270000

AFN = $255000