Question
(12-1) Broussard Skateboards sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5 million
(12-1) Broussard Skateboards sales are expected to increase by 15% from $8 million in
2013 to $9.2 million in 2014. Its assets totaled $5 million at the end of 2013.
Broussard is already at full capacity, so its assets must grow at the same rate as
projected sales. At the end of 2013, 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 40%. Use the AFN equation to forecast Broussards additional funds
needed for the coming year.
(12-2) Refer to Problem 12-1. What would be the additional funds needed if the companys yearend
2013 assets had been $7 million? Assume that all other numbers, including sales, are
the same as in Problem 12-1 and that the company is operating at full capacity. Why is
this AFN different from the one you found in Problem 12-1? Is the companys capital
intensity ratio the same or different?
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