AFN equation
Broussard Skateboard’s sales are expected to increase by 20% from $8.2 million in 2018 to $9.84 million in 2019. Its assets totaled $4 million at the end of 2018.
Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, 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 7%, and the forecasted payout ratio is 60%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
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Assume that the company’s year-end 2018 assets had been $5 million. Is the company’s “capital intensity” ratio the same or different?
The capital intensity ratio is measured as A0*/S0. Broussard’s current capital intensity ratio is -Select-higher thanlower thanequal toItem 2 that of the firm with $5 million year-end 2018 assets; therefore, Broussard is -Select-lessmorethe sameItem 3 capital intensive – it would require -Select-a smallera largerthe sameItem 4 increase in total assets to support the increase in sales.
