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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

AFN EQUATION Carter Corporation’s sales are expected to increase from $5 million in 2015 to $6 million in 2016, or by 20%. Its assets totaled $3 million at the end of 2015. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2015, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year.

Summary Introduction

To Determine: The additional funds needed for Corporation C.

Introduction: AFN is abbreviated as additional funds needed, is the measure of cash an organization must raise from outer sources to back the expansion in assets necessary to help expanded level of sales. It is additionally called as external financing needed (EFN).

Explanation

Determine the additional funds needed for Corporation C

AFN=[(A0*S0)×ΔS(L0*S0)×ΔS(M×S1×RR)]=[($3,000,000$5,000,000)×$1,000,000($500,000$5,000,000)×$1,000,000(5%×$6,000,000×30%)]=[(0

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