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

SALES INCREASE Paladin Furnishings generated $4 million in sales during 2016, and its year-end total assets were $3.2 million Also, at year-end 2016, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accrued liabilities. Looking ahead to 2017, the company estimates that its assets must increase by $0.80 for every $1.00 increase in sales. Paladin’s profit margin is 3%, and its retention ratio is 50%. How large of a sales increase can the company achieve without having to raise funds externally?

Summary Introduction

To compute: The increase in sales that a company can achieve without any raise of additional funds.


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.

Sales Forecast:

The sales forecast is the important point raise while making the plans. The management generally takes 5 years financial records and then studies it and decides the amount of turnover for the current and upcoming years.


Given information:

Sales in 2016 are $4million

Total assets in 2016 are $3.2 million

Total liability in 2016 is $500,000 includes $200,000 for notes payable, $200,000 for accounts payable, and $100,000 for accrued liability.

In 2017:

If sales increase by $1 then the assets will increase by $0.80

Profit margin is 3%

Retention ratio is 50%

No increase in additional funds needed is possible so AFN will be $0.

The formula to calculate AFN is



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

NPV PROFILES: TIMING DIFFERENCES An oil-drilling company must choose between two mutually exclusive extraction ...

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