Question
Sales are expected to be $ 3,325,000 in the next year (Year 2); and $6,650,000 in Year 3. The company projects a 5% net profit
Sales are expected to be $ 3,325,000 in the next year (Year 2); and $6,650,000 in Year 3. The company projects a 5% net profit in year 2 and a 6% net profit in year 3; believes it will need $ 700,000 in new FIXED ASSETS to support the projected Sales growth in Years 2 & 3; and that it will be able to sell $500,000 in NEW Convertible Long Term Debt (LTD) during this period to partially fund new asset requirements. Note that the firms financial model assumes that all Balance Sheet accounts annotated with an (*) will increase at the same rate as the Sales projection. By modifying and adapting the AFN formula to these facts, determine how much additional (external) financing (in EXCESS OF NEW LTD) will be required to support projected Sales growth in Years 2 & 3.
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