Calculation of additional fund requirement using AFN equation.
Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20%. Its assets totaled $3 million at the end of 2005. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, 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 5%, and the forecasted retention ration is 30 %. Use the AFN equation to forecast Carter's additional funds needed for the coming year.