Question 38 Use the information below to forecast the additi

Question 38 Use the information below to forecast the additional funds needed (AFN). Dollars are in millions. year\'s sales SO 350 ales growth rate g 500 5% $40 50 $30 0% t year\'s total assets A0* Last year\'s profit margin PM Last year\'s accounts payable Last year\'s notes payable ast year\'s accruals et retention ratio o $102.8 $108.2 O $113.9 ? $119.9 $125.9

Solution

Question 36:

AFN = Increase in assets - Increase in spontaneous liability - Increase in reatined earnings

Old assets = 500, new assets = 500*1.3 = 650,

Increase in assets = 650 -500 = 150

Spontaneous liability = 40+50+30 = 120

New spontaneous liability = 40*1.3 + 50 + 30 *1.3 = 141 (Notes payable is not a spontaneous liability)

Increase in spontaneous liability = 141-120 = 21

Sales next year = 350*1.3 = 455

Profit = 0.05*455 = 22.75

Increase in retained earnings = 45% = 0.4* 22.75 = 9.1

AFN = 150 -21 -9.1

AFN = 119.9 (Option 4)

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