2. The Webster Wonders Corporation (WWC) has begun selling a new product and the

Question

2. The Webster Wonders Corporation (WWC) has begun selling a new product and they want you to help them determine if they need additional funding (AFN) next year. Using the AFN formula method, calculate WWC’s AFN for next year (if any). The company’s latest financial statements are shown below. Sales growth next year is forecast to be 20% and the net profit margin is expected to remain the same as it is this year. Cash, A/R, Inventory, A/P, and Accruals all vary directly with sales. The company is not operating at capacity and expects to be able to handle the increase in sales without adding fixed assets. Also, the company expects to pay out 50% of any profits as dividends. Webster Wonders Corporation Financial Statements Historical This year Income statement: Sales $1,000 Costs $900 Profit 100 Balance Sheet: Cash $100 A/R $200 Inventory $200 Fixed assets $500 Total assets $1,000 A/P $50 Accruals $50 N/P $150 LTD $400 Common Stock $100 Ret earnings $250 Total Liabilities & Equity $1,000

Explanation / Answer

Sales 1200 Costs 1080 Profit 120 Dividends 60 Retained earnings 60 Cash 120 A/r 240 Inventory 240 Fixed asset 500 Total assets 1100 A/P 60 Accruals 60 N/P 150 LTD 400 Common stock 100 Ret earnings 310 Total liabilities & equity 1080 2) Additional funding required = Total assets - Total liabilities & equity = 20

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