Ok, so here is the question: Carter Corporation\'s sales are expected to increas

Question

Ok, so here is the question:

Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $4 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. Its profit margin is forecasted to be 6%, 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.

So, the equation should be (4000000/5000000)1000000-(1000000/5000000)1000000-(0.06)(6000000)(0.45)=8000000-2000000-126000=474000

But Cengage Brain says that the answer is incorrect. I've been through the chapter, but I can't seem to find where i'm going wrong.

Explanation / Answer

S0 = $ 5 million

S1 = $ 6 million

delta S = S1 - S0 = $ 1 million

Now asstes are goin to be increased at same rate i.e 20 %

Projected increase in assests = 1.2*4 = $ 4.8 million

Liabilities = $ 1million ;

Projected net profit = 0.06*$6 million = $0.36

Retention ratio =0.45

AFN = ( Projected assets / sales of last year)* change in sales - (Liabilities/sales of last year)* changre in sales - net profit *Retention rate

so (4.8/5) *1 - (1/5)*1 - 0.36*0.45 = $ 0.598 million = $598,000

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