Question

Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets = A0* $127,500 Last year's accruals $20,000 Last year's profit margin = PM 20.0% Target payout ratio 25.0%

Answer 1

Last year's sales	200000
Sales growth rate	40%
Forecasted sales (200000+(200000*40%))	280000
Net profit (280000*20%)	56000
Less: dividend paid (56000*25%)	14000
Increase in retained earning	42000
Last year total assets	127500
Increase in total assets (127500*40%)	51000
Account payable	50000
Accrual	20000
Last year's spontaneous liability	70000
Increase in spontaneous liability (70000*40%)	28000
Last year’s notes payable is not spontaneous. Not consider for AFN
AFN equation
Increase in total assets	51000
Less: increase in spontaneous liability	-28000
Less: increase in retained earning	-42000
Additional fund needed	-19000
Answer in negative AFN