Carter Corporation’s sales are expected to increase from $5 million in 2014 to $

Question

Carter Corporation’s sales are expected to increase from $5 million in 2014 to $6 million in 2015, or by 20%. Its assets totaled $3 million at the end of 2014. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2014, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year.

Explanation / Answer

Carter Corporation EFN Calculation Sales increase =deltaS       1,000,000 Total Assets=A       3,000,000 Current Sales =S=       5,000,000 Spontaneous Current Liabilities=Total Current Liabilities-Notes payable=L           500,000 Retention ratio=r= 30% Profit margin =m= 5% A/S=                  0.60 L/S=                  0.10 S1=forecast sales nesxt year =       6,000,000 AFN=A/S*deltaS-L/S*deltaS-m*S1*r =0.60*1000000-0.10*1000000-0.05*6000000*0.30 $                                                              410,000.00 So AFN required is $410,000

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.