Question

In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the...

In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?

Last year's sales = S0 $200,000 Last year's accounts payable $50,000
Sales growth rate = g 40% Last year's notes payable $15,000
Last year's total assets = A0* $117,500 Last year's accruals $20,000
Last year's profit margin = PM 20.0% Target payout ratio 25.0%

Select the correct answer.

a. - $23,040
b. - $22,940
c. - $23,000
d. - $22,980
e. - $22,960

Homework Answers

Answer #1

Answer:
Last year’s Sales = $200,000
Growth Rate = 40%
Expected Sales in next year = $200,000 * (1 + 0.40)
Expected Sales in next year = $280,000

Retention ratio = 1 – Dividend payout ratio
Retention ratio = 1 – 0.250
Retention ratio = 0.750 or 75.0%

Addition to Retained Earnings = Sales * Profit Margin * Retention Ratio
Addition to Retained Earnings = $280,000 * 20.0% * 75.0%
Addition to Retained Earnings = $42,000

Increase in Total Assets = $117,500 * 0.40
Increase in Total Assets = $47,000

Increase in Spontaneous Current Liabilities = ($50,000 + $20,000) * 0.40
Increase in Spontaneous Current Liabilities = $28,000

Additional Fund Needed = Increase in Total Assets - Increase in Spontaneous Current Liabilities - Addition to Retained Earnings
Additional Fund Needed = $47,000 - $28,000 - $42,000
Additional Fund Needed = -$23,000

Option C is correct.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets =...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets =...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets =...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the...
In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets =...
In your internship with LLT Inc. you have been asked to forecast the firm's additional funds...
In your internship with LLT Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? (5 points) Last year's sales = S0 $200,000 Sales growth rate = g 40% Last year's total assets = A0* $135,000 Last year's profit margin = PM 20.0% Last year's...
5. In your internship with LLT Inc. you have been asked to forecast the firm's additional...
5. In your internship with LLT Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Sales growth rate = g 40% Last year's total assets = A0* $135,000 Last year's profit margin = PM 20.0% Last year's accounts...
In your internship with Billy, Bob, & Brad Inc. you have been asked to forecast the...
In your internship with Billy, Bob, & Brad Inc. you have been asked to forecast the firm's additional funds needed (AFN) for next year. The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets =...
Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants...
Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0 $200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets = A0* $127,500 Last year's accruals $20,000...
You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington...
You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. 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 payout ratio from the 10% that was used in the past to 25%, which the firm's investment bankers have recommended. Based on the AFN equation,...
You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington...
You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. 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 payout ratio from the 10% that was used in the past to 85%, which the firm's investment bankers have recommended. Based on the AFN equation,...