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 $40.0Sales growth rate = 15% Last year’s notes payable $10.0Last year’s total assets = $500.0 Last year’s accruals $20.0Last year’s profit margin =15.0% Initial retention ratio 90.0%
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