Question

The AFN equation AFN = (A*/S0)(S1-S0) - (L*/S0)(S1-S0) - P(S1)(MM) gives 1900 = 2000 - 60...

The AFN equation AFN = (A*/S0)(S1-S0) - (L*/S0)(S1-S0) - P(S1)(MM) gives 1900 = 2000 - 60 - 40. The amount of capital that can be generated from an addition to retained earnings is

  • A. 2000

  • B. 60

  • C. 40

  • D. 100

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Homework Answers

Answer #1

AFN represents the amount of new funds that will be required by a Company so that the company can ascertain whether they will be able to generate additional funds for targeting higher sales.

Formula:

AFN= Projected increase in assets- spontaneous increase in liabilities- increase in retained earnings

= (A*/S0)(S1-S0) - (L*/S0)(S1-S0) - P(S1)(MM)

As per ques,

AFN (1900) = 2000 - 60 - 40

This means, the amount that can be generated from an addition to retained earnings is 40. (option C)

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