Answer:
AFN $172,000
Explanation:
To forecast the additional funds needed it's necessary to use the following equation:
AFN = A0 + S1/S0 - L0 x S1/S0 - S1 x PM x b
Where :
A0 = Current Level of Assets
S1/S0 = Percentage Increase in sales
L0 = Current Level of Liabilities
S1 = New Level of Sales
PM = Profit Margin
b= Retention rate = 1 - payout rate
Final Value
AFN = A0 ($2,000,000) + S1/S0 (0,20) - L0 ($780,000)
x S1/S0 (0,20) - S1($ 6,000,000) x PM (0,04) x b (0,30) = $172,000
The additional funds needed is the amount of money that the company must raise to increase the level of asset to support
the new level of sales.
The above equation indicate the excess increase in assets over the increase in liabilities and retained earnings as a consequence of the new level of sales.
