Question

Reno is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year's sales = $250
Sales growth rate = 28%
Last year's total assets = $450
Last year's profit margin = 4%
Last year's accounts payable = $30
Last year's notes payable = $40
Last year's accruals = $30
Target payout ratio = 50%

Answer 1

AFN = Sales Growth rate * Total Assets - Sales growth rate * (Accounts payable + accruals) - Last year sales * (1 + Sales growth rate) * Profit margin * (1 - Target payout ratio)

= 0.28 * 450 - 0.28 * (30 + 30) - 250 * (1 + 28%) * 0.04 * 0.50

= 126.00 - 16.80 - 6.40

= $102.80

Notes payables do not increase with an increase in sales

AFN = $102.80 Million