Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937



Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem

AFN EQUATION Refer to problem 16-1. What additional funds would be needed if the company’s year-end 2016 assets had been $4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in problem 16-1? Is the company’s “capital intensity” the same or different? Explain.

Summary Introduction

To determine: The additional funds C Company will need for the coming year.


Additional Funds Needed (AFN) Equation:

The AFN equation explains the amount of money that a company needs to fulfill the financial needs of the company. It gives the information related to the external financing, as the options available to a company to finance through external financing methods. This equation basically gives a new capital structure that includes an optimum mix of debt, preferred and common stock.

Capital Intensity:

It is an amount different from another production factors mainly labor. Capital intensity ratio is the measure of capital intensity that gives the information about the capital needed to fulfill the needs of the company.


Given information:

Assets at the end of 2016 is $ 4million

Sales in 2016 is $5million

Sales in 2017 is $6million

Increase in sale is 20%

Current liability at the end of 2016 is $1million. It includes $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liability.

Forecasted Profit margin is 3%

Forecasted retention ratio is 30%.

The formula to calculate the additional funds is



  • A0 is original assets.
  • S0 is current sales.
  • L0 is original liabilities.
  • ΔS is increase in sales.
  • MS1 is profit margin on sales.

Substitute $4,000,000 for current assets, $1,000,000 for increase in sales, $5,000,000 for current sales, $6,000,000 for expected sales and 3% for profit margin

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Is unemployment typically short-term or long-term? Explain.

Brief Principles of Macroeconomics (MindTap Course List)

PV AND A LAWSUIT SETTLEMENT It is now December 31,2013 (t = 0), and a jury just found in favor of a woman who s...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Should an economic model describe reality exactly?

Principles of Macroeconomics (MindTap Course List)

Dividends are not taxable because these earnings have already been taxed to the corporation.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

What is the price-recovery component?

Cornerstones of Cost Management (Cornerstones Series)