Solution
Robert answered on
Dec 26 2021
1) Winter Snowboard Inc. sales are expected to increase 10% in 2014 from $15 million in 2013.
Its assets at the end of 2013 were $5 million. The company is at full capacity, so its assets
must grow at the same rate as projected sales. At the end of 2013, cu
ent liabilities were
$2.0 million, consisting of $400,000 of accounts payable, $1,000 of notes payable, and
$600,000 of accruals. The after-tax profit margin is forecasted to be 4%, and the forecasted
payout margin is 60%. What are the additional funds needed in 2014?
Solution:
Formula: AFN= [(A0/S0)*∆S] – [(L0/S0)*∆S] – (S1*PM*b)
Where:
Ao = cu
ent level of assets
So = Sales in cu
ent year
ΔS = Expected increase in sales
Lo = cu
ent level of spontaneous liabilities (Other than long term liabilities such as notes payable,
ank loans etc.)
S1 = new level of sales
PM = profit margin
= retention rate = 1 – Pay-out rate
= [(5,000,000/15,000,000)*1,500,000] – [(1,000,000/15,000,000)*1,500,000] – [16,500,000*0.04*(1-
0.60)]
= $500,000 - $100,000 - $264,000
= $136,000
So, the additional funds needed will be $136,000.
2) Silicon valley Inc. had $6,000,000 in sales during 2016, and its year-end total assets were
$3,000,000. At year-end 2016, Silicon Valley had cu
ent liabilities of $1,200,000 consisting of
$360,000 of notes payable, $600,000 of accounts payable and $240,000 of accruals. For
2017, the...