Carter Corporation\'s sales are expected to increase from $5 million in 2012 to

Question

Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $5 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2012, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast Carter's additional funds needed for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent

Explanation / Answer

AFN = (A*/S0)?S - (L*/S0)?S - MS1(RR) = =(($4,000,000/$5,000,000) *1,000,000) - (($500,000/$5,000,000)*1,000,000-0.05($6,000,0000(0.25) =(0.8)($1,000,000) - (0.1)($1,000,000) - ($300,000)(0.25) =$800,000 - $100,000 - $75,000 =$625,000.

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