Homework Answers
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
b = Addition to Retained Earnings / Net Income = $2,056,509 / $3,427,515 = 0.60
PM = Net Income / Sales = $3,427,515 / $31,700,000 = 0.1081
AFN = [$27,896,000 x 0.20] - [$5,389,000 x 0.20] - [($31,700,000 * 1.20) x 0.1081 x 0.60]
= $5,579,200 - $1,077,800 - $2,467,810.80 = $2,033,589.20
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