Additional External Financing

You  have been running your small business, Craft’s Boat Shop, for several years now  and have been very successful.  You have  come to the point where you expect sales to increase next year and want to be  sure that you have enough assets available to support your sales. You also need  to have the financing available to acquire those assets, if needed.

Accordingly,  you have gathered the following data:

Craft’s Boat Shop                        

Sales Last Year

$1,000,000

Assets at the End of Last Year

750,000

Accounts Payable

60,000

Notes Payable

60,000

Accruals

30,000

Profit Margin on Sales

5%

Dividend Payout

50%

Note: All figures are as of the end of last year

Required:

  • If you need $0.80 in assets  for every $1.00 in sales, by how much can sales increase without obtaining  additional outside financing?  HINT: Use  the AFN formula.

 
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