Purchase Solution

AFN Equation, Sales, Forecasts & Others

Not what you're looking for?

Ask Custom Question


AFN EQUATION Carter Corporation's sales are expected to increase from $5 million in problems 2008 to $6 million in 2009, or by 20%. Its assets totaled $3 million at the end of 2008. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2008, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year.


Walter Industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity.

a. What level of sales could Walter Industries have obtained if it had been operating at full capacity?

b. What is Walter's Target fixed assets/Sales ratio?

c. If Walter's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio?


PRO FORMA INCOME STATEMENT At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):

Sales $3,000
Operating costs excluding depreciation 2,450
EBITDA $ 550
Depreciation 250
EBIT $ 300
Interest 125
EBT 175
Taxes (40%) 70
Net income $ 105
Looking ahead to the following year, the company's CFO has assembled this information:
? Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.
? l Year-end operating costs, excluding depreciation, are expected to equal 80% of year end sales.
? Depreciation is expected to increase at the same rate as sales.
? Interest costs are expected to remain unchanged.
? The tax rate is expected to remain at 40%.
On the basis of that information, what will be the forecast for Roberts' year-end net income?


REGRESSION AND RECEIVABLES Edwards Industries has $320 million in sales. The company expects that its sales will increase 12% this year. Edwards' CFO uses a simple linear regression to forecast the company's receivables level for a given level of projected sales. On the basis of recent history, the estimated relationship between receivables and sales (in millions of dollars) is as follows:
Receivables = $9.25 + 0.07(Sales)


OPTIONS A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share.
a. What is the exercise value of the call option?
b. What is the premium on the option?


OPTIONS The exercise price on one of Flanagan Company's call options is $15, its exercise value is $22, and its premium is $5. What are the option's market value and the stock's current price?

Purchase this Solution

Solution Summary

This solution contains step-by-step calculations to determine the AFN Equation, sales values, forecasts and other accounting concepts.

Purchase this Solution

Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.