Manufacturing Inc. reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 10%. Cold Duck expects to maintain its current profit margin of 24% and dividend payout ratio of 25%. The following information was taken from Cold Duck’s balance sheet: Total assets: $475,000 Accounts payable: $65,000 Notes payable: $45,000 Accrued liabilities: $70,000 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 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. Because of its excess funds, Cold Duck Manufacturing Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Cold Duck could pay out _____ of its earnings to shareholders without needing to raise any external capital. (Hint: What can Cold Duck 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

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Cold Duck Manufacturing Inc. reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 10%. Cold Duck expects to maintain its current profit margin of 24% and dividend payout ratio of 25%. The following information was taken from Cold Duck’s balance sheet:

Total assets:	$475,000
Accounts payable:	$65,000
Notes payable:	$45,000
Accrued liabilities:	$70,000

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 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.

Because of its excess funds, Cold Duck Manufacturing Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Cold Duck could pay out _____________ of its earnings to shareholders without needing to raise any external capital. (Hint: What can Cold Duck increase its dividend payout ratio to before the AFN becomes positive?)

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