AFN EQUATION Refer to Problem 16-1 and assume that the company had $3 million in assets at the end of 2014. However, now assume that the company pays no dividends. Under these assumptions, what additional funds would be needed for the coming year? Why is this AFN different from the one you found in Problem 16-1?
AFN EQUATION Carter Corporation’s sales are expected to increase from $5 million in 2014 to $6 million in 2015, or by 20%. Its assets totaled $3 million at the end of 2014. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2014, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year.