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Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN)
Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN). 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? Dollars are in millions.
| Last year's sales = S0 | $350 | Last year's accounts payable | $40 |
| Sales growth rate = g | 30% | Last year's notes payable | $50 |
| Last year's total assets = A0* | $420 | Last year's accruals | $30 |
| Last year's profit margin = PM | 5% | Target payout ratio | 60% |
Select the correct answer.
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Expert Solution
AFN for the coming years = Increase in assets - Increase in Spontaneous Liabilities - Addition to retained earnings
AFN for the coming years = Assets * Growth rate - (accounts Payable + Accruals) * Growth Rate - New Sales * Profit Margin * (1 - Payout Ratio)
AFN for the coming years = 420 * 30% - (40 + 30) * 30% - 350 * 1.30 * 5% * 40%
AFN for the coming years = 126 - 21 - 9.10
AFN for the coming years = $95.9 Option E
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