Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the retention ratio from 90% that was used in the past to 50%, which the firm's investment bankers have recommended. Seventy-five percent (75%) of the total assets are considered variable. Based on the AFN equation, by how much would the AFN for the coming year change if HHW decreased the retention from 90% to the new level? All dollars are in millions. Last year’s sales = $300.0 Last year’s accounts payable $40.0 Sales growth rate = 15% Last year’s notes payable $10.0 Last year’s total assets
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to
Based on the AFN equation, by how much would the AFN for the coming year change if HHW decreased the retention from 90% to the new level? All dollars are in millions.
Last year’s sales = $300.0 Last year’s accounts payable $40.0
Sales growth rate = 15% Last year’s notes payable $10.0
Last year’s total assets = $500.0 Last year’s accruals $20.0
Last year’s profit margin =15.0% Initial retention ratio 90.0%
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