6-3: The AFN Equation Problem Walk-Through

Long-term financing needed

At year-end 2014, total assets for Ambrose Inc. were $1.8 million and accounts payable were $405,000. Sales, which in 2014 were $2.3 million, are expected to increase by 20% in 2015. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $500,000 in 2014, and retained earnings were $340,000. Ambrose plans to sell new common stock in the amount of $200,000. The firm's profit margin on sales is 4%; 35% of earnings will be retained.

1. What was Ambrose's total debt in 2014? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent. $
3. How much new long-term debt financing will be needed in 2015? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent. (Hint: AFN - New stock = New long-term debt.) $