Answers
Additional Funds Needed [AFN] for 2020
Expected Next Year Sales = $12,000,000
After Tax profit Margin
After Tax profit Margin = Expected Next Year Sales x Profit Margin
= $12,000,000 x 10%
= $1,200,000
Dividend Pay-out
Dividend Pay-out = After Tax profit Margin x Dividend Pay-out Ratio
= $1,200,000 x 35%
= $420,000
Additions to Retained Earnings
Additions to Retained Earnings = After Tax profit Margin - Dividend Pay-out
= $1,200,000 - $420,000
= $780,000
Increase in Total Assets
Increase in Total Assets = Total Assets x Percentage of Increase in sales
= $7,000,000 x 20%
= $1,400,000
Increase in Spontaneous liabilities
Increase in Spontaneous liabilities = [Accounts Payable + Accruals] x Percentage of Increase in sales
= [$750,000 + $850,000] x 20%
= $1,600,000 x 20%
= $320,000
Additional Funds Needed [AFN]
Therefore, the Additional Funds Needed [AFN] = Increase in Total Assets – Increase in in Spontaneous liabilities – Additions to retained earnings
= $1,400,000 - $320,000 - $780,000
= $300,000
Therefore, the Additional Funds Needed (AFN) for 2020 is $300,000
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