Please answer the question fully. AFN equation Carter Corporation\'s sales are e
ID: 2714297 • Letter: P
Question
Please answer the question fully.
AFN equation
Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $4 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2012, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 6%.
a. Assume that the company pays no dividends.
Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
$____________
b. Why is this AFN different from the one when the company pays dividends?
I. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.
II.Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.
III.Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.
IV.Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.
V. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.
I,II,III,IV OR V
NOTE: I previously recieved the answers $290,000.00 and I. Both of these answers were incorrect.
Explanation / Answer
1) AFN = (A0*/S0)DS – (L0*/S0)DS – MS1(RR)
= (4000000//5000000) $1,000,000 – (1000000/5000000)$1,000,000 – 0.06($6,000,000)(1)
= (0.8)($1,000,000) – (0.2)($1,000,000) – ($360,000)(1)
= $800000– $200,000 – $360000
= $240000
2) iii) Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.