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In your internship with Lewis, Lee, & Taylor Inc
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. 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* | $132,500 | Last year's accruals | $20,000 |
| Last year's profit margin = PM | 20.0% | Target payout ratio | 25.0% |
Expert Solution
Last year sales(S0)=200000
Forecasted sales growth=40%
Change in sales =last year sales*growth rate
=200000*40% =80000
Next year sales (S1)= 200000+80000= 280000
Assets last year (A0)=132500
spontaneous Liabilities (L0)= Accounts payables+accrual
=50000+20000=70000
Profit margin (PM)= 20%
Dividends payout ratio =25%
External financing Needed Equation = (A0/ S0)*change in Sales - (L0/S0)*change in Sales -(S1*profit margin*(1- payout ratio)
((132500/200000)*80000)-(70000/200000*80000)-(280000*20%*(1-25%))
=-17000
EFN is -17000. It means there is no need of external financing needed next year. So EFN needed next year will be zero (0)
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