Calculating AFN: Forecast Baxter's additional funds needed for the upcoming year.
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Baxter Video Product's sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already a full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $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 ration is 70%. Use the AFN equation to forecast Baxter's additional funds needed for the coming year.
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Solution Summary
This post shows how to calculate the forecast the funds for coming year by using AFN equation
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Additional Funds needed = Required increase in assets - Spontaneous increase
in liabilities - Increase in retained earnings
Use AFN formula =(A/S)(S1-S0) - (L*/S)(S1-S0) -MS1(1-d)
A=Assets =$3.0 ...
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