Significance of the term additional funds needed
What is the significance of the term additional funds needed?
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Once the pro forma balance sheet is finished, total liabilities, equity and total assets will hardly ever match.
The difference between forecasted liabilities, equity and assets results then either too little or too much financing is estimated for the asset amount growth. The difference is called additional funds needed (AFN), and then forecast assets exceed forecast liabilities and equity, and excess financing is needed when forecast liabilities and equity exceed forecast assets.
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Rs. Sales 2,40,000 Variable costs 1,44,000 Fixed costs 26,000 Profit before tax 70,000 Rate of tax 40% Firm is proposing to buy the new plant that could generate extra annual profit of Rs. 10,000. The fixed cost of new plant is expected to Rs. 4000. New plant would increase sales volume by Rs. 40,00
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