(ST–2)

AFN Equation Refer to Problem ST-1, and suppose Barnsdale’s financial consultants report (1) that the inventory turnover ratio (sales/inventory) is 3, compared with an industry average of 4, and (2) that Barnsdale could reduce inventories and thus raise its turnover ratio to 4 without affecting its sales, profit margin, or other asset turnover ratios. Under these conditions, use the AFN equation to determine the amount of additional funds Barnsdale would require during each of the next 2 years if sales grow at a rate of 20% per year.

Chapter 12: Financial Planning and Forecasting Financial Statements 501