When constructing pro forma financial statements, which of the following equations can be used to estimate additional funds needed (AFN)?
A)Estimated AFN = Forecasted increase in assets + Forecasted increase in liabilities + Forecasted increase in retained earnings
B)Estimated AFN = Forecasted increase in assets - Financing feedbacks + Forecasted increase in retained earnings
C)Estimated AFN = Forecasted increase in assets - Financing feedbacks - Spontaneously generated funds
D)Estimated AFN = Forecasted increase in liabilities + Financing feedbacks + Spontaneously generated funds
E)Estimated AFN = Forecasted increase in assets - Forecasted increase in liabilities - Forecasted increase in retained earnings

Question

Quizplus · Accepted Answer

The correct formula for estimating additional funds needed (AFN) is to take the forecasted increase in assets and subtract both the forecasted increase in liabilities and the forecasted increase in retained earnings. This approach helps determine how much external financing a company will need to support its growth.

When Constructing Pro Forma Financial Statements, Which of the Following