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Additional funds needed (AFN)

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A firm has the following balance sheet:
Cash $ 20 Accounts payable $ 20
Accounts receivable 20 Notes payable 40
Inventory 20 Long-term debt 80
Fixed assets 180 Common stock 80
Retained earnings 20
Total assets $240 Total liabilities & Equity $240

Sales for the year just ended were $500, and fixed assets were used at 80 percent of capacity. Current assets and accounts payable vary directly with sales. Sales are expected to grow by 10 percent next year, the expected net profit margin is 5 percent, and the dividend payout ratio is 60 percent.

How much additional funds (AFN) will be needed next year, if any?

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Solution Preview

AFN = Increase in assets - increase in spontaneous liabilities - increase in retained earnings
Here fixed assets are used 80% of capacity, we need to first check if fixed assets need to increase. Amount of ...

Solution Summary

The solution explains how to determine the additional funds needed (AFN)