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    AFN equation

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    Carter Corporation's sales are expected to increase from $5 million in 2008 to $6 million in 2009, or by 20%. Its assets totaled $3 million at the end of 2008. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2008, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio of 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year.

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    Solution Preview

    AFN = (A*/S0)(ΔS)- (L*/ S0)(ΔS)- MS1(RR)
    we are given
    A* = 3,000,000 ( the assets now)
    So = 5,000,000 ( the current ...

    Solution Summary

    The solution explains the use of AFN equation to determine the amount of additional funds needed