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Computation of AFN

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Problem 12-9
Financing Deficit
Garlington Technologies Inc.'s 2013 financial statements are shown below:
Balance Sheet as of December 31, 2013
Cash $ 180,000 Accounts payable $ 360,000
Receivables 360,000 Notes payable 156,000
Inventories 720,000 Line of credit 0
Total current assets $1,260,000 Accruals 180,000
Fixed assets 1,440,000 Total current liabilities $ 696,000
Common stock 1,800,000
Retained earnings 204,000
Total assets $2,700,000 Total liabilities and equity $2,700,000
Income Statement for December 31, 2013
Sales $3,600,000
Operating costs 3,279,720
EBIT $ 320,280
Interest 18,280
Pre-tax earnings $ 302,000
Taxes (40%) 120,800
Net income 181,200
Dividends $ 108,000
Suppose that in 2014 sales increase by 20% over 2013 sales and that 2014 dividends will increase to $202,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2013. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the AFN will be in the of form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2014
Sales $
Operating costs $
EBIT $
Interest $
Pre-tax earnings $
Taxes (40%) $
Net income $
Dividends: $
Addition to RE: $

Garlington Technologies Inc.
Pro Forma Balance Statement
December 31, 2014
Cash $
Receivables $
Inventories $
Total current assets $
Fixed assets $
Total assets $
Accounts payable $
Notes payable $
Accruals $
Total current liabilities $
Common stock $
Retained earnings $
Total liabilities and equity $

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Solution Summary

The solution helps in computing AFN for Garlington Technologies.

$2.19
See Also This Related BrainMass Solution

Computing TIE and AFN: Formula to Forecast Funds

Question 1:

The following shows some information related to ABC Company.
Total debt outstanding $300,000
Annual Interest Rate 5%
Annual Revenues $1,000,000
Average tax rate 35%
Net profit margin on revenues 10%

What is the company's TIE (times-interest earned)?

Question 2:

ABC Company's sales are expected to increase from $5 million in 2004 to $6 million in 2005, or by 20%. Its assets totaled $3 million at the end of 2004. ABC is full capacity, so its assets must grow at the same rate as projected sales. At the end of 2004, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-ax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN formula to forecast ABC's additional funds needed for the coming year.

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