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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.