Use the information below to forecast the additional funds needed (AFN). Dollars

Question

Use the information below to forecast the additional funds needed (AFN). Dollars are in millions.

Last year's sales = S0

$500

Sales growth rate = g

20%

Last year's total assets = A0*

$1000

Last year's profit margin = PM

5%

Last year's accounts payable

$80

Last year's notes payable

$60

Last year's accruals

$50

Target payout ratio

40%

Last year's sales = S0

$500

Sales growth rate = g

20%

Last year's total assets = A0*

$1000

Last year's profit margin = PM

5%

Last year's accounts payable

$80

Last year's notes payable

$60

Last year's accruals

$50

Target payout ratio

40%

Explanation / Answer

Actual funds needed=((A0/S0)*chnage in sales)--((L0/S0)*chnage in sales)-((PM*Next year sales)*(1-payout))
Ao = current level of assets
S/So = percentage increase in sales i.e. change in sales divided by current sales
Lo = current level of liabilities=account payabke+accrual
S1 = new level of sales
PM = profit margin
b = retention rate = 1 – payout rate

=((1000*20%)-((130*20%)-(5%*500*1.2*(1-40%))
=156mn

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