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:
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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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