After adding a new line of widgets, Worldwide Widget Manufacturing, Inc., expects all assets and current...

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After adding a new line of widgets, Worldwide WidgetManufacturing, Inc., expects all assets and current liabilities toshrink with sales. The company has sales for the year just ended of$20 million. The company also has a profit margin of 20 percent, areturn ratio of 25 percent, and expected sales of $18 million nextyear. Worldwide Widget Manufacturing, Inc., shows the following onits balance sheet.
Assets Liabilities and Equity
Current assets- $2,500,000 Current liabilities- $1,250,000
Fixed assets- $3,500,0000 Long-term debt- $1,500,000
Total assets- $6,000,000 Equity- $3,250,0000
Total liabilities and equity- $6,000,000
What amount of additional funds (AFN) will Worldwide WidgetManufacturing, Inc., need from external sources to fund theexpected growth? What does the AFN show?

Answer & Explanation Solved by verified expert

3.8 Ratings (619 Votes)

Part 1 The value of AFN can be derived with the use of formula given below Additional Funds Needed AFN Total AssetsSales for the Current YearChange in Sales Spontaneous LiabilitiesSales See Answer

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After adding a new line of widgets, Worldwide WidgetManufacturing, Inc., expects all assets and current liabilities toshrink with sales. The company has sales for the year just ended of$20 million. The company also has a profit margin of 20 percent, areturn ratio of 25 percent, and expected sales of $18 million nextyear. Worldwide Widget Manufacturing, Inc., shows the following onits balance sheet.AssetsLiabilities and EquityCurrent assets- $2,500,000Current liabilities- $1,250,000Fixed assets- $3,500,0000Long-term debt- $1,500,000Total assets- $6,000,000Equity- $3,250,0000Total liabilities and equity- $6,000,000What amount of additional funds (AFN) will Worldwide WidgetManufacturing, Inc., need from external sources to fund theexpected growth? What does the AFN show?

Assets	Liabilities and Equity
Current assets- $2,500,000	Current liabilities- $1,250,000
Fixed assets- $3,500,0000	Long-term debt- $1,500,000
Total assets- $6,000,000	Equity- $3,250,0000
	Total liabilities and equity- $6,000,000