Problem:

Cloud 9's salCLOUD 9 sales were $500,000 during 2005, and its year-end assets were $400,000. For 2006, sales are expected to grow by 5%,and since the firm is operating at full capacity, its assets must grow in proportion to sales. Its 2005 current liabilities consisted of $60,000 of accounts payable, $20,000 of notes payable, and $50,000 of accruals. Its after-tax profit margin is forecasted to be 15%, and the firm plans to pay out 20% of its earnings.

Required:

Question: Based on the AFN equation, what is the firm's additional funds needed (AFN) for 2006?

• -$21,000
• -$28,500
• -$36,500
• -$41,000
• -$48,500

Note: Provide support for your rationale.