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Forecasting: Additional Funds Needed (AFN)

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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
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.