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Forecasting: Additional Funds Needed (AFN)

A firm has the following balance sheet:
Cash $ 20 Accounts payable $ 20
Accounts receivable 20 Notes payable 40
Inventory 20 Long-term debt 80
Fixed assets 180 Common stock 80
Retained earnings 20
Total assets $240 Total liabilities & Equity $240

Sales for the year just ended were $400, and fixed assets were used at 80 percent of capacity. Current assets and accounts payable vary directly with sales. Sales are expected to grow by 5 percent next year, the expected net profit margin is 5 percent, and the dividend payout ratio is 60 percent.

How much additional funds (AFN) will be needed next year, if any?

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How much additional funds (AFN) will be needed next year, if any?

Current Forecasted
Revenue 400.00 420.00
Net Income 20.00 21.00 (5% of Sales)
Dividends 12.00 12.60 (60% of Dividends)
Retained Earnings 8.00 8.40

Current Forecasted/Proforma
Assets
Current Assets 60.00 63.00
Fixed Assets 180.00 180.00
Total ...

Solution Summary

This solution calculates the retained earnings, external funds required and the new level of debt with step-by-step calculations enclosed in an Excel file. Brief calculations are included for further understanding.

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