Based on the AFN equation, the AFN for the coming year will be -$16000.
<h3>How to calculate the AFN?</h3>
Last year's sales =$200,000
Sales growth rate = g = 40%
Forecasted sales = S0 × (1 + ) = 280,000
∆S = change in sales = S1 − S0 = $80,000
Last year's total assets = A*0 = A*0 since full capacity $135,000
Forecasted total assets = A*1 = A*0 × (1 + g) = $189,000
Last year's accounts payable = $50,000
Last year's accruals= $20,000
L*0 = payables + accruals = $70,000
Profit margin = M = 20.0%
Target payout ratio = 25.0%
Retention ratio = (1 − Payout) = 75.0%
AFN = (A*0/S0)ΔS – (L*0/S0)ΔS – Margin × S1 × (1 − Payout)
AFN = $54,000 – $28,000 – $42,000
= -$16,000
The complete question goes thus:
Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below.
Last year's sales = $200,000
Sales growth rate = 40%
Last year's accounts payable = $50,000
Last year's notes payable = $15,000
Last year's accruals = $20,000
Based on the AFN equation, what is the AFN for the coming year?
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