Green Caterpillar Garden Supplies Inc. reported sales of $720,000 at the end of last year, but this year, sales are expected to grow by 9%. Green Caterpillar expects to maintain its current profit margin of 22% and dividend payout ratio of 15%. The following information was taken from Green Caterpillar’s balance sheet: Total assets: $400,000 Accounts payable: $80,000 Notes payable: $30,000 Accrued liabilities: $60,000 Based on the AFN equation, the firm’s AFN for the current year is . A positively signed AFN value represents: A shortage of internally generated funds that must be raised outside the company to finance the company’s forecasted future growth. 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 surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends. Because of its excess funds, Green Caterpillar Garden Supplies Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Green Caterpillar could pay out of its earnings 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?)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 7P

See similar textbooks

Related questions

Question

Green Caterpillar Garden Supplies Inc. reported sales of $720,000 at the end of last year, but this year, sales are expected to grow by 9%. Green Caterpillar expects to maintain its current profit margin of 22% and dividend payout ratio of 15%. The following information was taken from Green Caterpillar’s balance sheet:

Total assets:	$400,000
Accounts payable:	$80,000
Notes payable:	$30,000
Accrued liabilities:	$60,000

Based on the AFN equation, the firm’s AFN for the current year is .

A positively signed AFN value represents:

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

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

Because of its excess funds, Green Caterpillar Garden Supplies Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Green Caterpillar could pay out of its earnings 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?)

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 6 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions