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AFN - Additional Funding Needs

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?

Solution Preview

Dear Student,

Here is the formula and the meanings of the symbols:

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

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

$2.19