Question

How do I arrive at the solution below for this problem?

Assuming the firm is operating at full capacity and using the data in the table below, forecast Orwell's AFN for the coming year? Last year's sales = S0 $451,000 Last year's accounts payable $40,000 Sales growth (ΔS) $140,000 Last year's notes payable $10,000 Last year's total assets = A0* $103,000 Last year's accruals $10,000 Last year's profit margin = PM 0.25 Target payout ratio 0.4

Solution: -9,471,051,197.67

Answer 1

Last Year's Sales(S)=$451,000.

Last Year's Accounts Payable(AP)=$40,000.

Last Year's Total Assets(TA)=$103,000.

Sales Growth(DS)=$140,000.

Last Years Notes Payable+Accruals (Accured Liabilities)=$10,000+$10,000= $20,000.

Last Year's Net Income(NI)=0.25*451,000

=$1,12,750.

Target PayOut=0.4*112750.

=$45,100.

Retention Ratio(RR)=1,12,750-45,100=$67650.

This Year's Profit=0.25*591,000=$147750.

This Year's Retention Ratio=(1-0.4)*147750=88,650.

Next Year's Profit=0.25*731,000=182,750

Next Year's Retention Ratio=(1-0.4)*182750.=$109650.

AFN For Last Year=TA/S(DS)-(AP+AL)S-(S)*(NI/S)*RR.

=(103,000/451,000)*140,000-(40,000+20,000/451,000)*140,000-451,000*(112,750/451,000)*0.6

=31973.39-18625.28-67650=-54301.88.

AFN For This Year=(103,000/591,000)*140,000-(60,000/591,000)*140,000-591,000(147750/591,000)*0.6

=24399.32-14213.20-88650=-78463.87

=(103,000/731,000)*140,000-(60,000/731,000)*140,000-731,000*(182,750/731,000)*0.6

=-101414.71