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# Important information about 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 is 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year. Please show all work.

#### Solution Preview

The AFN equation is
AFN = (A*/S0)(delta S)- (L*/ S0)(delta S)- MS1(RR)
A* total assets now= 3,000,000
S0 current sales = 5,000,000
delta ...

#### Solution Summary

The solution explains how to calculate the amount of additional funds needed.

\$2.19