Suppose that the 2013 actual and 2014 projected financial statements for your firm are initially shown as follows. In these tables, sales are projected to rise by 18 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 18 percent rate as sales are indicated by green type. Assuming that your firm has to pay 9 percent interest on debt, what would the AFN be if needed capital was to be raised entirely from equity?
How would your answer change if the entire AFN was to be raised from long-term debt? And what does this imply about the relationship between the sources of funding and the amount needed?

Spontaneous increase in assets ........... $1,879,200
Less: Spontaneous increase in liabilities ...... 316,260
Less: Projected increase in retained earnings ..... 723,082
Additional funds needed .............. $ 839,858

  • CreatedSeptember 23, 2014
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