Refer to Problem 12-1. What would be the additional funds needed if the companys year-end 2016 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?

problem 12-1

Broussard Skateboards sales are expected to increase by 15% from $8 million in 2016 to $9.2 million in 2017. Its assets totaled $5 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 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussards additional funds needed for the coming year.