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# Additional funds needed (AFN)

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Stevens Textile's 2007 Financial Statetemets are shown below:

Stevens Textile: Balance Sheet as of December 31, 1007 (thousands of dollars)

Cash \$1,080 Accounts payable \$4,320
Receivables 6,480 Accruals 2,880
Inventories 9,000 Notes payable 2,100
Total Current assets \$16,560 Total current liabilities \$9,300
Net fixed assets 12,600 Mortgage bonds 3,500
Common stock 3,500
Retained Earnings 12,860
Total assets \$29,160 Total liabilities & equity \$29,160

Stevens Textile: Income Statement for December 31, 2007 (thousands of dollars)

Sales \$36,000
Operating costs 32,440
EBIT 3,560
Interest 460
Earnings before taxes 3,100
Taxes (40%) 1,240
Net Income 1,860
Dividends (45%) 837
Addition to retained earnings \$1,023

Suppose 2008 sales are projected to increase by 15% over 2007 sales.
Determine the additional funds needed. Assume that the company was operating at full capacity in 2007, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Use the forecasted financial statements method to develop a pro forma balance sheet and income statement for December 31,2008. Use an interest rate of 10% on the balance of debt at the beginning of the year to computer interest (cash pays no interest). Use the pro forma income statement to determine the addition to retained earnings.

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#### Solution Summary

The solution explains how to determine the additional funds needed.

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