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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* $730 Last year's accruals $30
Last year's profit margin = PM 5% Target payout ratio 60%
Expert Solution
Computation of the AFN for the coming year:-
Forecasted Sales = Last years sales*(1+ Sales growth rate)
= $350*(1+30%)
= $455 million
Increase in sales = Forecasted sales - Last year's sales
= $455 - $350
= $105 million
Spontaneous liabilities = Accounts payable + Accrued liabilities
= $40 + $30
= $70 million
AFN = ((Last year's total assets / Last year's sales) * Increase in sales) - ((Last Year's spontaneous liabilities / Last year's sales) * Increase in sales) - (Forecasted sales*Last year's profit margin*(1-Payout ratio))
= ((730/350) * 105) - ((70/350) * 105) - (455*5%*(1-60%))
= 219 - 21 - 9.1
= $188.9 million
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