Use the information below to forecast the additional funds n

Use the information below to forecast the additional funds needed (AFN). Dollars are in millions.

Last year\'s sales = S0

$500

Sales growth rate = g

20%

Last year\'s total assets = A0*

$1000

Last year\'s profit margin = PM

5%

Last year\'s accounts payable

$80

Last year\'s notes payable

$60

Last year\'s accruals

$50

Target payout ratio

40%

Solution

Actual funds needed=((A0/S0)*chnage in sales)--((L0/S0)*chnage in sales)-((PM*Next year sales)*(1-payout))
Ao = current level of assets
S/So = percentage increase in sales i.e. change in sales divided by current sales
Lo = current level of liabilities=account payabke+accrual
S1 = new level of sales
PM = profit margin
b = retention rate = 1 – payout rate

=((1000*20%)-((130*20%)-(5%*500*1.2*(1-40%))
=156mn