Drop-down options: (dollar value), (percentage)
1). Additional Funds Needed = [A0 x (ΔS / S0)] - [L0 x (ΔS / S0)] - [S1 x PM x b]
Where,
Ao = current level of assets
Lo = current level of liabilities
ΔS/So = percentage increase in sales i.e. change in
sales divided by current sales
S1 = new level of sales
PM = profit margin
b = retention rate = 1 - payout rate
AFN = [$500,000 x 0.06] - [($70,000 + $80,000) x 0.06] - [{$775,000 * (1 + 0.06)} x 0.24 x (1 - 0.10)]
= $30,000 - $9,000 - $177,444 = -$156,444
2). First option is correct.
A positively signed AFN represents a shortage of internally generated funds that must be raised outside the company to finance the company's growth.
3). AFN will be 0 at that point.
0 = [$500,000 x 0.06] - [($70,000 + $80,000) x 0.06] - [{$775,000 * (1 + 0.06)} x 0.24 x (1 - DPR)]
0 = $30,000 - $9,000 - [$197,160 * (1 - DPR)]
$197,160 - [$197,160 * DPR] = $21,000
$197,160 * DPR = $197,160 - $21,000
DPR = $176,160 / $197,160 = 0.8935, or 89.35%
Drop-down options: (dollar value), (percentage) 3. More on the AFN (Additional Funds Needed) equation Bohemian Manufacturing...
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3. The Additional Funds Needed (AFN) equation Bohemian Manufacturing Company has the following end-of-year balance sheet: Bohemian Manufacturing Company Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents $250,000 Accounts receivable $150,000 400,000 350,000 $900,000 Accounts payable Accrued liabilities Notes payable 150,000 Inventories Total Current Assets Net Fixed Assets: Net plant and equipment (cost minus depreciation) Total Current Liabilities Long-Term Bonds Total Debt 100,000 $500,000 1,000,000 $1,500,000 $2,100,000 Common Equity Common...
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