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AFN Formula Method Answer: A Diff: M 19. Financial Plan Answer: e Diff: M N

This document provides an example calculation of additional funds needed (AFN) using both a balance sheet and formula method. It first shows the balance sheets before and after a $700 increase in working capital. It then shows the formula calculations that arrive at the same $700 AFN figure. The document also provides an example of forecasting the addition to retained earnings in the following year based on sales growth and cost assumptions.

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Kaye Javellana
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Download as PDF, TXT or read online on Scribd
43 views

AFN Formula Method Answer: A Diff: M 19. Financial Plan Answer: e Diff: M N

This document provides an example calculation of additional funds needed (AFN) using both a balance sheet and formula method. It first shows the balance sheets before and after a $700 increase in working capital. It then shows the formula calculations that arrive at the same $700 AFN figure. The document also provides an example of forecasting the addition to retained earnings in the following year based on sales growth and cost assumptions.

Uploaded by

Kaye Javellana
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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18.

AFN formula method Answer: a Diff: M

19. Financial plan Answer: e Diff: M N

The correct answer is statement e. Statements a, b, c, and d are all steps


taken in the financial planning process. Two additional steps not
mentioned are: Forecast funds availability over the next five years and
develop procedures for adjusting the basic plan if the economic forecasts
upon which the plan was based do not materialize.

20. Additional funds needed Answer: d Diff: E

Balance sheet solution:


Cash $ 1,600 Accounts payable $ 700
Accounts receivable 900 Accrued wages 300
Inventories 1,900 Notes payable 2,000
Net fixed assets 34,000 Mortgage 26,500
Common stock 3,200
Retained earnings 5,000
Total liabilities
Total assets $38,400 and equity $37,700

AFN = $38,400 - $37,700 = $700.

Formula solution:
S0 = S; MS1 = $1,000.
A* L*
AFN = (S) - (S) - MS1(RR) = $2,200 - $500 - $1,000(1) = $700.
S0 S0

21. Forecasting addition to retained earnings Answer: b Diff: E

2002 Forecast Basis 2003


Sales $7,000  1.1 $7,700
Operating costs 3,000  0.4286 (S1) 3,300
EBIT $4,000 $4,400
Interest 200 200
Earnings before taxes (EBT) $3,800 $4,200
Taxes (40%) 1,520 1,680
Net income available to
common shareholders $2,280 $2,520

Dividends to common (50%) $1,260


Addition to retained earnings (50%) $1,260

Chapter 17 - Page 25

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