Carlsbad Corporation's sales are expected to increase from $5
million in 2019 to $6 million in 2020, or by 20%. Its assets
totaled $3 million at the end of 2019. Carlsbad is at full
capacity, so its assets must grow in proportion to projected sales.
At the end of 2019, current liabilities are $1 million, consisting
of $250,000 of accounts payable, $500,000 of notes payable, and
$250,000 of accrued liabilities. Its profit margin is forecasted to
be 5%.
- Assume that the company pays no dividends. Use the AFN equation
to forecast the additional funds Carlsbad will need for the coming
year. Write out your answer completely. For example, 5 million
should be entered as 5,000,000. Round your answer to the nearest
dollar.
$
- Why is this AFN different from the one when the company pays
dividends?
- Under this scenario the company would have a higher level of
retained earnings, which would reduce the amount of additional
funds needed.
- Under this scenario the company would have a higher level of
retained earnings, which would reduce the amount of assets
needed.
- Under this scenario the company would have a higher level of
spontaneous liabilities, which would reduce the amount of
additional funds needed.
- Under this scenario the company would have a lower level of
retained earnings, which would increase the amount of additional
funds needed.
- Under this scenario the company would have a lower level of
retained earnings, which would decrease the amount of additional
funds needed.
-Select- one