In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's...

Question:

In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. 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?

Last year's sales =$200,000

Last year's accounts payable $50,000

Sales growth rate = g

20% Last year's notes payable $15,000

Last year's total assets = A0* $135,000

Last year's accruals $20,000

Last year's profit margin= PM 10.0%

Target payout ratio 50.0%

Additional Funds Needed(AFN):

The additional funds needed (AFN) is financial planning tool used by a company seeking to expand its business. It is the amount that must be raised from external financing sources to support the increase in assets and sales.

Answer and Explanation:


The formula for additional funds needed (AFN) is presented as follows:


AFN = (Required increase in assets) - (Spontaneous increase in liabilities) - (Increase in retained earnings)


{eq}AFN = (\frac{A*}{S_{0}})\Delta S - (\frac{L*}{S_{0}})\Delta S -(M)S_{1}(1-d) {/eq}


We'll substitute the formula with the values given in the problem.


{eq}AFN = (\frac{135,000}{200,000})(40,000) - (\frac{50,000 + 20,000 }{200,000})(40,000) -(.10)(240,000)(1-.50) {/eq}

= $27,000 - $14,000 - $12,000

= $1,000


Therefore, the additional funds needed for the coming year is $1,000.


Learn more about this topic:

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