Company b sales are expected to increase from $5 million in 2005 to $6 million in 2006, or a 20% increase. Its assets totaled $3 million at the end of 2005. Company b is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are $1 million, consisting of $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast Company b's additional funds needed for the coming year.
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AFN (additional funds needed) = (A/S0) * (S1 - S0) - (L/S0) * (S1 - S0) - M * S1 * RR
A = Assets
S0 = Sales during the current year (2005)
S1 = Sales during the next ...
This solution calculates the AFN (additional funds needed) for a company based on a forecasted increase in sales