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 2011 to $6 million in 2012, or by 20%. Its assets totaled $5 million at the end of 2011. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2011, 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%, and the forecasted retention ratio is 40%. Use the AFN equation to forecast Carter's additional funds needed for the coming year. 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)*1,000,000-0.03($6,000,0000(0.4)

800 000 -100 000-72000

=$628000

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