Chang & Wu Inc.is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed 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?
$$\begin{array}{l}
\begin{array} {llll}
\text { Last year's sales }=\$ 0 && \$ 200,000 &\text { Last year's accounts }\
\text { payable } & \$ 50,000\
\text { Sales growth rate =g }&&40 \%&\text { Last year's notes}\
\text { payable } & \$ 15,000\
\text {Last year's total assets =A*0}&& \$135,000 &\text {Last year's}\
\text {accruals}&\$20,000\
\text { Last year's profit margin=M} &&20.0 \%& \text { Target payout }\
\text { ratio }* 25.0 \%\
\end{array}
\end{array}$$
A)-$14,440
B)-$15,200
C)-$16,000
D)-$16,800
E)-$17,640

Question

Chang & Wu Inc.is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed 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?
$$\begin{array}{l}
\begin{array} {llll} 
\text { Last year's sales }=\$ 0 && \$ 200,000 &\text { Last year's accounts }\
\text { payable } & \$ 50,000\
\text { Sales growth rate =g }&&40 \%&\text {  Last year's notes}\
\text { payable } & \$ 15,000\
\text {Last year's total assets =A*0}&&  \$135,000 &\text {Last year's}\
\text {accruals}&\$20,000\
\text { Last year's profit margin=M} &&20.0 \%& \text { Target payout }\
\text { ratio }* 25.0 \%\
\end{array}
\end{array}$$
A)-$14,440
B)-$15,200
C)-$16,000
D)-$16,800
E)-$17,640

Quizplus · Accepted Answer

The AFN (Additional Funds Needed) can be calculated using the formula:  AFN = (A*/S0) * ΔS - (L*/S0) * ΔS - M * S1 * (1 - payout ratio)  Where:  A* = Last year's total assets = $135,000  S0 = Last year's sales = $200,000  ΔS = Increase in sales = 40% of $200,000 = $80,000  L* = Last year's spontaneous liabilities (accounts payable + accruals) = $50,000 + $20,000 = $70,000  M = Profit margin = 20%  S1 = Projected sales = $200,000 + $80,000 = $280,000  Payout ratio = 25%  Plugging in the values:  AFN = ($135,000/$200,000) * $80,000 - ($70,000/$200,000) * $80,000 - 0.20 * $280,000 * (1 - 0.25)  AFN = $54,000 - $28,000 - $42,000  AFN = $16,000

Chang & Wu Inc A)-$14,440 B)-$15,200 C)-$16,000 D)-$16,800 E)-$17,640

Chang & Wu Inc A)-$14,440
B)-$15,200
C)-$16,000
D)-$16,800
E)-$17,640