Question

Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed. The only items he wants you to focus on are given below. Forecast increases in assets, liabilities and retained earnings for the items given below and determine additional fund needed. (3 points) Hint: You can use the formula orforecast each identified item. Data for use in your forecast are shown below. $500 Last year's sales Sales growth rate Target dividend payout ratio Margin on sales 20% 60% 5% S 500 Last year's spontaneous assets Last year's accounts payable Last year's notes payable $ 40 50 Last year's accruals $ 10 AFN O

Answer 1

Answer : Additional Fund Needed:

AFN = (last year's spontaneous assets * sales growth rate) - (last year's total liabilities * sales growth rate) - (next year sales * profit margin * retention ratio)

AFN = (500 * 20%) - ((40 + 50 + 10) * 20%) - ((500 + 20%) * 5% * (1 - 60%))

AFN = 100 - 20 - 12 = $68 million.