Click here to read the eBook The AFN Equation AFN EQUATION C

Click here to read the eBook: The AFN Equation AFN EQUATION Carlsbad Corporation\'s sales are expected to increase from $5 million in 2016 to S6 million in 2017, or by 20%. Its assets totaled $4 million at the end of 2016. Carlsbad is at ful capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $25S0,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 6%, and the forecasted retention ratio is 30% Use the AFN equation to f reast the addtional funds Carlsbad wil need for the coming year Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. Check My Work 4 7 5 8 9

Solution

AFN=
A0* percentage increase in sales(-)L0* percentage increase in sales(-)S1*PM*b
Where,

A o = current level of assets
Lo = current level of liabilities
S1 = new level of sales
PM = profit margin
b = retention rate = 1 – payout rate

AFN
=4*.20(-).75*.20(-)6*.06*.30
=.8(-).15(-).108
=.542 million
=$542,000