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AFN - Additional Funding Needs

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The Booth Company's sales are forecasted to double from $1,000 in 2010 to $2,000 in 2011. Here is the December 31, 2010, balance sheet.
Cash $100 Accounts payable $50
Accounts receivable $200 Notes payable $150
Inventories $200 Accurals $50
Net Fixed Assets $500 Long-term debt $400
Total assets $1,000 Common stock $100
Retained earnings $250
Total liabilities & Equity $1,000
Booth's fixed assets were used to only 50% of capacity during 2010, Booth's after-tax profit margin is forecast to be 5% and its payout ratio to be 60%. What is booth's additional funded needed (AFN) for the coming year?

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Dear Student,

Here is the formula and the meanings of the symbols:

AFN = (A*/S0)?S - (L*/S0)?S - MS1(RR)

A* = Assets tied directly to sales and will increase
L* = Spontaneous liabilities that will be ...

Solution Summary

How to calculate Additional Funding Needs of a firm

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How to Calculate Additional Funds Needed (AFN)

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Baxter Video Production's sales are expected to increase from $5 million in 2007 to $6 million by 2008 or by 20%. Its assets totaled $3 million at the end of 2007. Baxter is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2007, current liabilities $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter's additional funds needed for the the upcoming year.

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