Answer:
Additonal Funds Needed
$ 300.000
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 ($4,000,000) + S1/S0 (0,20) - L0 ($1,000,000)
x S1/S0 (0,20) - S1 ($ 6,000,000) x PM (0,05) x b (1,00) = $300,000
The additional funds needed is the amount of money that the company needs to fulfill the financial needs of the company.
This equation gives a new capital structure that includes an optimum mix of debt, preferred and common stock.
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.
