A firm has the following Balance Sheet:
CA 7,000
FA 3,000
TA 10,000
AP 1,500
Short-Term Loans 2,000
Common Stock 1,500
RE 5,000
Total Claims 10,000
After tax profit margin is 3.0% and the firm pays out 40% of its earnings in dividends. Sales last year were 12,000. Profit Margin and payout ratio will remain constant.
a. Use the AFN equation to estimate the funds needed if sales will grow 25% next year and it is currently operating at 100% capacity.
b. Without doing the calculations, would the funds needed be higher or lower if the firm has been operating at 50% capacity this year?