Purchase Solution

Additional Funds Needed (AFN)

Not what you're looking for?

Ask Custom Question

A firm has the following Balance Sheet:

CA 7,000
FA 3,000

TA 10,000

AP 1,500
Short-Term Loans 2,000
Common Stock 1,500
RE 5,000

Total Claims 10,000

After tax profit margin is 3.0% and the firm pays out 40% of its earnings in dividends. Sales last year were 12,000. Profit Margin and payout ratio will remain constant.

a. Use the AFN equation to estimate the funds needed if sales will grow 25% next year and it is currently operating at 100% capacity.

b. Without doing the calculations, would the funds needed be higher or lower if the firm has been operating at 50% capacity this year?

Purchase this Solution

Solution Summary

This solution illustrates how to compute a company's additional funds needed if it operates at full capacity and discusses how that changes if it operates at partial capacity.

Solution Preview

a. For purposes of the Additional Funds Needed formula, we do not consider short-term loans or notes to be spontaneous liabilities (i.e., they do not increase with an increase in sales). Furthermore, if the company is operating at full capacity, all assets will be ...

Purchase this Solution

Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.