Refer to Problem 17-1. What additional funds would be needed if the company’s year-end 2021 assets had been $4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in Problem 17-1? Is the company’s

“capital intensity” the same or different? Explain.

Problem 17-1

Carlsbad Corporation’s sales are expected to increase from $5 million in 2021 to $6 million in 2022, or by 20%. Its assets totaled $3 million at the end of 2021.

Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2021, current liabilities are $1 million, consisting of $250,000 of accounts payable,

$500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 3%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year.