Question

AFN EQUATION Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $4 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 4%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.

Answer 1

AFN (A/SO)AS-L/SO)AS-MS1(RR) A- Assets tied directly to sales L-spontaneous liabilities that are affected by sales So the previous year's sales Si total projected sales for next year AS the change in sales between SO and S1 MS1 projected net income RR the retention ratio from net income $ 4,000,000 | $ 500,000 $ 5,000,000 $ 6,000,000 $ 1,000,000 6000000-5000000 $ 240,000 =6000000*4% 70% =1-30% Additional funds needed (AFN): 532 (4000000/5000000)>1000000-(500000/5000000)x1000000-6000000x4%x70%

Please rate thumbs up