Finance 338 Time spent: ___________________

Jonathan Wiley Name: _______________________

jowiley@oru.edu Date: ________________________

Homework Project b-6

Pre-question: In the space below, write down the first and second commandments given in
the Ten Commandments (Ex. 20:2-17; Deut. 5:6-21). The short versions are fine.

The first commandment is there shall be no other gods before God. The second commandment is
to not make any false idols.

Questions (worth 5 raw points per numerical question, and show your work):

1. What is the first step of developing a financial forecast? (i.e., what do you project first?)

The first projection in developing a financial forecast is projecting financial statements, which
begins with sales forecasts.

2. A. What does AFN signify?

Additional Funds Needed (AFN) produces the estimated funds a firm has to raise externally.

B. What is the equation used to calculate it?

The equation used to calculate AFN is (A*/S0)S – (L*/S0) S – MS1(RR) or

S x (A*0/S0)  A.

3. A. What types of assets, liabilities, and equity are assumed to vary directly with sales?

Current Assets, Current Liabilities and Stockholders’ Equity are assumed to vary directly
with sales.

B. What types of liabilities, assets, and equity are not assumed to vary directly with
sales?

Liabilities such as paid interest are not assumed to vary directly with sales, and dividends are an
example of equity not assumed to vary directly with sales.

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4. Johnny’s Hardware Store’s sales were $550,000 during 2019, and its year-end assets
were $440,000. For 2020, sales are expected to grow by 5%, and since the firm is
operating at full capacity, its assets must grow in proportion to sales. Its current
liabilities consisted of $65,000 of accounts payable, $25,000 of notes payable, and
$55,000 of accruals. Its after-tax profit margin is forecasted to be 17%, and the firm
plans to pay out 25% of its earnings. Based on the AFN equation, what is the firm’s
additional funds needed (AFN) for 2020? (HINT: do notes payable spontaneously
increase with sales? Show all work.)

A. -$30,131
B. -$37,631
C. -$45,631
D. -$50,131
E. -$57,631

5. I hereby certify that all work contained in this homework assignment is exclusively my
own. I have abided by all aspects of the Honor Code during the preparation of this
assignment, and I pledge to uphold the Honor Code by continuing to personally abide
by it and by reporting all violations that I observe. I recognize that copying another
student’s work is plagiarism and an Honor Code violation. Furthermore, I realize that
although consulting other students as I complete this assignment is permissible,
ultimately the work that I submit must be exclusively my own.

Signature: _______________________________________________________

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