In: Finance
Additional Funds Needed [AFN] for the coming year
Expected Next Year Sales = $9,120,000
After Tax profit Margin
After Tax profit Margin = Expected Next Year Sales x Profit Margin
= $9,120,000 x 6.00%
= $547,200
Dividend Pay-out
Dividend Pay-out = After Tax profit Margin x Dividend Pay-out Ratio
= $547,200 x 70%
= $383,040
Additions to Retained Earnings
Additions to Retained Earnings = After Tax profit Margin - Dividend Pay-out
= $547,200 - $383,040
= $164,160
Increase in Total Assets
Increase in Total Assets = Total Assets x Percentage of Increase in sales
= $2,000,000 x 20%
= $400,000
Increase in Spontaneous liabilities
Increase in Spontaneous liabilities = [Accounts Payable + Accruals] x Percentage of Increase in sales
= [$450,000 + $450,000] x 20%
= $900,000 x 20%
= $180,000
Additional Funds Needed [AFN]
Therefore, the Additional Funds Needed [AFN] = Increase in Total Assets – Increase in in Spontaneous liabilities – Additions to retained earnings
= $400,000 - $180,000 - $164,160
= $55,840
“Hence, Broussard's additional funds needed for the coming year will be $55,840”