Question

Fuzzy Button Clothing Company reported sales of $820,000 at the end of last year; but this year, sales are expected to grow by 10%. Fuzzy Button expects to maintain its current profit margin of 23% and dividend payout ratio of 10%. The firm’s total assets equaled $500,000 and were operated at full capacity. Fuzzy Button’s balance sheet shows the following current liabilities: accounts payable of $65,000, notes payable of $25,000, and accrued liabilities of $60,000. Based on the AFN (Additional Funds Needed) equation, what is the firm’s AFN for the coming year? -$149,214 -$164,135 -$186,518 -$134,293

Answer 1

Answer:

-$149,214

Explanation:

EFN = (A/S) x (Δ Sales) - (L/S) x (Δ Sales) - (PM x FS x (1-d))

A/S = assets / sales = 500,000 / 820,000 = 0.60976

ΔSales = $820,00 x 10% = $82,000

L/S = liabilities / sales = 125,000 / 820,000  = 0.15244

PM = profit margin = 23%

FS = forecasted sales = $902,000

1 - d = 1 - 10% = 0.9

EFN = (0.60976 x $82,000) - (0.15244 x $82,000) - ($902,000 x 0.23 x 0.9) = $ 50,000 - $12,500 - $186,714 = -$149,214