AFN equation Carter Corporation\'s sales are expected to increase from $5 millio

Question

AFN equation

Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $2 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2012, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 3%.

Assume that the company pays no dividends.
Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
$   

Explanation / Answer

Additional Funds Needed AFN = (A/S0)S - (L/S0)S - MS1(1 - d)

Additional Funds Needed AFN = (2000000/6000000)*1200000 - (1000000/6000000)*1200000 - 21600(1 - 0)

=400000-200000-21600

=178400

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