Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.
$\begin{array}{l}
\begin{array}{lc}
\text { Last year's sales }=S_{0} & \$ 350 \text { Last year's accounts payab } \
\text { Sales growth rate }=g & 30 \% \text { Last year's notes payable } \
\text { Last year's total assets }=A_{0} * & \$ 500 \text { Last year's accruals } \
\text { Last year's profit margin }=\text { PM } & 5 \% \text { Target payout ratio }
\end{array}
\begin{array}{r}
\$ 40 \
\$ 50\
\$ 30 \
60 \%
\end{array}
\end{array}$

Question

Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions. 
$\begin{array}{l}
\begin{array}{lc}
\text { Last year's sales }=S_{0} & \$ 350 \text { Last year's accounts payab } \
\text { Sales growth rate }=g & 30 \% \text { Last year's notes payable } \
\text { Last year's total assets }=A_{0} * & \$ 500 \text { Last year's accruals } \
\text { Last year's profit margin }=\text { PM } & 5 \% \text { Target payout ratio }
\end{array}
\begin{array}{r}
\$ 40 \
\$ 50\
\$ 30 \
60 \%
\end{array}
\end{array}$

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Last year's sales }=S_{0} & \$350 \
\text { Sales growth rate }=g & 30 \% \
\text { Forecasted sales }=S_{0} \times(1+g) & \$455 \
\Delta S=\text { change in sales }=S_{1}-S_{0}=S_{0} \times g & \$ 105\
\text { Last year's total assets }=A_{0}{ }^{*}=A_{0}{ }^{*} \text { since full capacity } & \$ 500 \
\text { Last year's accounts payable } & \$ 40\
\text { Last year's notes payable. Not spontaneous, }\
\text {so does not enter AFN calculation }&\$50 \
\text { Last year's accruals}&\$30 \
\text { $ \mathrm{L}_{0}{ }^{*}= $ payables $ + $ accruals}&\$ 70 \
\text {Profit margin $ =M $ }&5.0 \% \
\text {Target payout ratio }&60.0 \%
\end{array}$
 
AFN = (A0*/S0)σS σ (L0*/S0)σS σ Profit margin × S1 × (1 σ Payout) AFN = $150.0 σ $21.0 σ $9.1 = $119.9

Daniel Sawyer, the CEO of the Sawyer Group, Is Initiating