Question

CCC currently has sales of $28,000,000 and projects sales of $39,200,000 for next year. The firm's current assets equal $7,000,000 while its fixed assets are $6,000,000. The best estimate is that current assets will rise directly with sales while fixed assets will rise by $300,000. The firm presently has $3,500,000 in accounts payable, $2,100,000 in long-term debt, and $7,400,000 in common equity. All current liabilities are expected to change directly with sales. CCC plans to pay $1,000,000 in dividends next year and has a 4.0% net profit margin. What are the company's additional funds needed for the next year? (Round your answer to the nearest dollar.)

Answer 1

Additional Funds Needed [AFN] for the next year

• Percentage of Increase in sales = 40% [{($392,00,000 -280,00,000) / $280,00,000} x 100]
• Expected Next Year Sales = $392,00,000
• After Tax profit Margin = $15,68,000 [$392,00,000 x 4%]
• Payment of Dividend = $10,00,000
• Therefore, Additions to Retained Earnings will be $568,000 [$15,68,000 - $10,00,000]

• Increase in Current Assets = $28,00,000 [$70,00,000 x 40%]
• Increase in Fixed Assets = $300,000
• Increase in Total Assets = $31,00,000 [$28,00,000 + $300,000]
• Increase in Current Liabilities = $14,00,000 [$35,00,000 x 40%]

Additional Funds Needed [AFN] for the next year

Additional Funds Needed [AFN] for the next year = Increase in Assets – Increase in Liabilities – Additions to retained earnings

= $31,00,000 - $14,00,000 - $568,000

= $11,32,000

“Additional Funds Needed [AFN] for the next year would be $11,32,000”