Question

Use this table to answer this question (All are stated in million dollars)

Edge Corp. Balance Sheet		2020	2019	Edge Corp. Balance Sheet			2020	2019
Cash and cash equivalents		2,768	2,879	Accounts payable			8,022	7,251
Short-term investment sec.		954	1,029	Accruals			9,290	8,559
Accounts receivable		5,321	4,306	Notes Payables			9,981	8,472
Total inventories		7,077	6,384	Long-term debt			22,033	21,360
Prepaid expenses		5,548	4,184	Other borrowings			21,027	21,091
TOTAL CURRENT ASSETS		21,970	18,782	TOTAL LIABILITIES			70,353	66,733
Net Property Plants (Net PPE)		21,293	19,244	Common stock+ paid in Cap			58,134	58,134
Other long-term assets		95,091	90,146	Retained earnings			9,565	3,305
TOTAL ASSETS		138,052	128,172	TOTAL LIAB & EQUITY			138,052	128,172
	Edge Corp. Income Statement			2020	2019
	NET SALES			82,559	78,938
	Cost of products sold			40,768	37,919
	Selling, general and administrative expense			23,135	21,890
	Depreciation expense			2,838	3,108
	OPERATING INCOME			15,818	16,021
	Interest expense			629	974
	EARNINGS BEFORE INCOME TAXES			15,189	15,047
	Income taxes			3,392	3,360
	NET INCOME			11,797	11,687
	Total Dividends Payments			5,537	5,186

Suppose the expected growth of net sales for 2021 is 10%, calculate the Edge Corp. Additional Fund Needed (AFN) for 2021 based on the 2020 status quo. Also, please explain the meaning of the Additional Fund Needed (AFN) for 2021 that you calculated to the firm.

Answer 1

	In the absence of detailed information
	assuming all assets will need to be increased
	with sales increase next year
	Spontaneous Assets =Total Assets	$                         138,052
	Spontaneous Laibilities :
	Accounts Payable	$                             8,022
	Accruals	$                             9,290
	Total Spontaneous Liability=	$                           17,312
		Amt $
a	Current Sales =S=	82,559
b	Net Income =	11,797
c	Net Income % m =b/a=	14.29%
d	Spontanueous Total Asset =A =	138,052
e	Total Spontaneous Current Liability:L=	17,312
f	A/S =	1.6722
g	L/S=	0.20969
h	Sales Growth =	10%
i	Prejected Sales Next Year =S1=	90,814.90
j	Delta Sales =Sales growth =	8,255.90
k	Dividend payout =d=5537/11797	46.94%
	External Finance needed =
	AFN= A/S*deltaS-L/S*deltaS-m*S1*(1-d)
	AFN=1.6722*8255.9-0.20969*8255.9-14.29%*90814.9*(1-46.94%)
	AFN =5188
	So Additional Fund needed for 2021 is $5188
	The meaning of AFN $5188 is that there will be an increase in the
	requirement of assets to deliver the sales gowth next year.
	Part of the assets increase will be funded by increase in spontaneous
	loabilities that will grow with sales , part will be funded from the
	additional retained earning from the additional income from
	increased sales . The remaining amount that need to be borrowed
	additionally to fund the increase in assets is the AFN =$5188.