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 2015, or by 20%. Its assets totaled $4 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 35%. Use the AFN equation to forecast the additional funds Carter will need 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

AFN = (A*/S0)?S - (L*/S0)?S - MS1(RR)

=(($4,000,000/$5,000,000) *1,000,000) - (($500,000/$5,000,000)*1,000,000-0.05($6,000,0000(0.35)

=$800,000 - $100,000 - $105000

=$595000

AFN = (A*/S0)?S - (L*/S0)?S - MS1(RR)

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