CCC currently has sales of $24,000,000 and projects sales of $32,400,000 for nex

Question

CCC currently has sales of $24,000,000 and projects sales of $32,400,000 for next year. The firm's current assets equal $6,000,000 while its fixed assets are $5,000,000. The best estimate is that current assets will rise directly with sales while fixed assets will rise by $300,000. The firm presently has $3,000,000 in accounts payable, $1,800,000 in long-term debt, and $6,200,000 in common equity. All current liabilities are expected to change directly with sales. CCC plans to pay $800,000 in dividends next year and has a 4.0% net profit margin.

Using the AFN Formula determine what are the company's additional funds needed for the next year? Please show all your work regarding the new amounts for the projected assets, projected liabilities and projected equity. (Round your answer to the nearest dollar.)

Explanation / Answer

The AFN can be calculated with the use of following formula:

AFN = [(Current Assets/Sales)*(Revised Sales) + Revised Fixed Assets] - [(Spontaneous Liabilities/Sales)*(Revised Sales) + Long Term Debt] - [Current Equity + Revised Net Income - Dividends]

________

Using the values provided in the question, we get,

Additional Funds Needed (AFN) = [(6,000,000)/(24,000,000)]*(32,400,000 + (5,000,000 + 300,000)] - [(3,000,000/24,000,000)*(32,400,000) + 1,800,000] - [6,200,000 + 4%*32,400,000 - 800,000] = $854,000 (answer)

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