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Refer to Problem 12-1. What would be the additional funds ne

    Refer to Problem 12-1. What would be the additional funds needed if thecompany’s year-end 2010 assets had been $4 million? Assume that allother numbers, including sales are the same as problem 12-1 and that thecompany is operating at full capacity. Why is this AFN different fromthe one you found in Problem 12-1? Is the company’s “capital intensity”ratio the same or different?Problem 12 – 1 for referenceBaxter Video Products’s sales are expected to increase by20% from $5 million in2010 to $6 million in 2011. Its assets totaled $3 million atthe end of 2010. Baxteris already at full capacity, so its assets must grow at thesame rate as projected sales.At the end of 2010, current liabilities were $1 million,consisting of $250,000 ofaccounts payable, $500,000 of notes payable, and $250,000 ofaccruals. The aftertax profit margin is forecasted to be 5%, and the forecastedpayout ratio is 70%.Use the AFN equation to forecast Baxter’s additional fundsneeded for thecoming year.I did the math before and it appears that if the company had more assets it would need more additional funds. The question is somewhat confusing assuming my math is correct.ORIGINAL problem 12-1 with 3million assetsAFN = (A0*/S0)ΔS –(L0*/S0)ΔS – (PM)(S1)(1 – payout rate)AFN = ((3000000/5000000)(1000000)) -((500000/5000000)(1000000)) – ((.05(6000000)(1-.7))AFN = (600000) – (100000) – (90000)AFN = 410000Company having 4million in assetsAFN = (A0*/S0)ΔS –(L0*/S0)ΔS – (PM)(S1)(1 – payout rate)AFN = ((4000000/5000000)(1000000)) -((500000/5000000)(1000000)) – ((.05(6000000)(1-.7))AFN = (800000) – (100000) – (90000)AFN = 610000

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