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# What is the forecast additional funds needed equation for Company B?

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B corporation's sales are expected to increase from 5 million in 2005 to 6 million in 2006, or 20 percent. Its assets totalled 3 million at the end of 2005. Company B is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are 1 million, consisting of 250,000 of accounts payable, 500,000 in notes payable, and 250,000 in accrued liabilities.

The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention rate is 30 percent. Use the AFN to forecast Company B's additional funds needed for the coming year. Please show all calculations.

#### Solution Preview

At the end of year 2005
Assets = 3 million
Accounts payable = 250,000
Notes Payable = 500,000
Accrued Liabilities = 250000

Profit Margin = 5%
Retention rate = 30%

Increase in sales = 6 million - 5 million = 1 million
Asset turnover ratio ...

#### Solution Summary

This solution uses AFN to forecast additional funds needed for Company B for the upcoming year.

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