Question

More on the AFN (Additional Funds Needed) equation Green Caterpillar Garden Supplies Inc. reported sales of...

More on the AFN (Additional Funds Needed) equation

Green Caterpillar Garden Supplies Inc. reported sales of $775,000 at the end of last year; but this year, sales are expected to grow by 6%. Green Caterpillarexpects to maintain its current profit margin of 20% and dividend payout ratio of 30%. The firm’s total assets equaled $475,000 and were operated at full capacity. Green Caterpillar’s balance sheet shows the following current liabilities: accounts payable of $60,000, notes payable of $25,000, and accrued liabilities of $60,000. Based on the AFN (Additional Funds Needed) equation, what is the firm’s AFN for the coming year?

-$112,452

-$93,710

-$117,138

-$98,396

A negatively-signed AFN value represents:

a surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends.

a point at which the funds generated within the firm equal the demands for funds to finance the firm’s future expected sales requirements.

a shortage of internally generated funds that must be raised outside the company to finance the company’s forecasted future growth.

Because of its excess funds, Green Caterpillar is thinking about raising its dividend payout ratio to satisfy shareholders. What percentage of its earnings can Green Caterpillar pay to shareholders without needing to raise any external capital? (Hint: What can Green Caterpillar increase its dividend payout ratio to before the AFN becomes positive?)

69.6%

87.0%

82.6%

74.0%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
More on the AFN (Additional Funds Needed) equation Green Caterpillar Garden Supplies Inc. reported sales of...
More on the AFN (Additional Funds Needed) equation Green Caterpillar Garden Supplies Inc. reported sales of $743,000 at the end of last year; but this year, sales are expected to grow by 7%. Green Caterpillar expects to maintain its current profit margin of 23% and dividend payout ratio of 15%. The firm’s total assets equaled $400,000 and were operated at full capacity. Green Caterpillar’s balance sheet shows the following current liabilities: accounts payable of $70,000, notes payable of $40,000, and...
Green Caterpillar Garden Supplies Inc. reported sales of $775,000 at the end of last year; but...
Green Caterpillar Garden Supplies Inc. reported sales of $775,000 at the end of last year; but this year, sales are expected to grow by 7%. Green Caterpillar expects to maintain its current profit margin of 20% and dividend payout ratio of 10%. The firm’s total assets equaled $400,000 and were operated at full capacity. Green Caterpillar’s balance sheet shows the following current liabilities: accounts payable of $70,000, notes payable of $30,000, and accrued liabilities of $70,000. Based on the AFN...
Cold Duck Manufacturing Inc. reported sales of $775,000 at the end of last year, but this...
Cold Duck Manufacturing Inc. reported sales of $775,000 at the end of last year, but this year, sales are expected to grow by 9%. Cold Duck expects to maintain its current profit margin of 20% and dividend payout ratio of 30%. The following information was taken from Cold Duck’s balance sheet: Total assets: $475,000 Accounts payable: $65,000 Notes payable: $40,000 Accrued liabilities: $65,000 Based on the AFN equation, the firm’s AFN for the current year is _______ . A positively...
Bohemian Manufacturing Company reported sales of $720,000 at the end of last year; but this year,...
Bohemian Manufacturing Company reported sales of $720,000 at the end of last year; but this year, sales are expected to grow by 8%. Bohemian expects to maintain its current profit margin of 20% and dividend payout ratio of 15%. The firm’s total assets equaled $400,000 and were operated at full capacity. Bohemian’s balance sheet shows the following current liabilities: accounts payable of $70,000, notes payable of $30,000, and accrued liabilities of $60,000. Based on the AFN (Additional Funds Needed) equation,...
Fuzzy Button Clothing Company reported sales of $720,000 at the end of last year; but this...
Fuzzy Button Clothing Company reported sales of $720,000 at the end of last year; but this year, sales are expected to grow by 10%. Fuzzy Buttonexpects to maintain its current profit margin of 20% and dividend payout ratio of 15%. The firm’s total assets equaled $500,000 and were operated at full capacity. Fuzzy Button’s balance sheet shows the following current liabilities: accounts payable of $80,000, notes payable of $25,000, and accrued liabilities of $80,000. Based on the AFN (Additional Funds...
What is the Additional Funds Needed (AFN)? How to understand the AFN Equation? How to forecast...
What is the Additional Funds Needed (AFN)? How to understand the AFN Equation? How to forecast sales growth g? What is payout ratio? How does the ratio affect AFN?
The term "additional funds needed (AFN)" is generally defined as follows: a. Funds that a firm...
The term "additional funds needed (AFN)" is generally defined as follows: a. Funds that a firm must raise externally from non-spontaneous sources, i.e., by borrowing or by selling new stock to support operations. b. The amount of assets required per dollar of sales. c. A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. d. Funds that are obtained automatically from routine business transactions. e. The amount of internally generated cash in...
You have been asked to forecast the additional funds needed (AFN) for next year for Hurley,...
You have been asked to forecast the additional funds needed (AFN) for next year for Hurley, Hoblit, & Davis (HHD), which is planning its operation for the coming year. The firm is operating at full capacity. The payout ratio for HHD is 10%. Based on this information, calculate the additional funds needed for the coming year given the following information: Last year's sales = $350 Million Sales growth rate = 25% Last year's total assets = $550 Million Last year's...
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,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT