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    Compute TIE and AFN formula to forecast funds

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    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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    Solution Summary

    Provides steps necessary to determine the formula to forecast funds.