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f. Copper Belt Energy Management Systems (CBEM) had a sales last year amounting K3M (M = million). The sales are expected to grow 20%
f. Copper Belt Energy Management Systems (CBEM) had a sales last year amounting K3M (M = million). The sales are expected to grow 20% in the coming year. CBEM has no access to any external capital and wants to know whether it can finance its planned growth with its internally generated funds. CBEM requires additional assets (receivables, inventories, and fixed assets) equal to 80% of the increase in sales. Short-term liabilities (accounts payable and other accruals) will increase by 20% of the sales increase. The net profit margin is 15%, and CBEM plans to pay a K 100,000 cash dividend next year. Answer the below questions. i. ii. iii. Describe the AFN equation. What does it mean if the AFN value is negative? (2 Mark) Use the AFN equation to find if any additional financing is required by CBEM. (5 Marks) What does your computation in (b) reveal in terms of addition assets to support its sales growth? How much of this will come from the spontaneous financing from short-term liabilities that increase with sales? How much will come from this year retained earnings? (2 Marks)
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