The firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, Cold Duck Manufacturing Inc. generated $450,000 net income on sales of $14,000,000. The firm expects sales to increase by 16% this coming year and also expects to maintain its long-run dividend payout ratio of 30%. Suppose Cold Duck Manufacturing Inc.’s assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support Cold Duck Manufacturing Inc.’s expected sales. $528,000 $408,000 $384,000 $480,000 When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Cold Duck Manufacturing Inc. this year? $51,200 $54,400 $64,000 $70,400 In addition, Cold Duck Manufacturing Inc. is expected to generate net income this year. The firm will pay out some of its earnings as dividends but will retain the rest for future asset investment. Again, the more a firm generates internally from its operations, the less it will have to raise externally from the capital markets. Assume that the firm’s profit margin and dividend payout ratio are expected to remain constant. Given the preceding information, Cold Duck Manufacturing Inc. is expected to generate $______________________ from operations that will be added to retained earnings. According to the AFN equation and projections for Cold Duck Manufacturing Inc., the firm’s AFN is $ _________________
The firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, Cold Duck Manufacturing Inc. generated $450,000 net income on sales of $14,000,000. The firm expects sales to increase by 16% this coming year and also expects to maintain its long-run dividend payout ratio of 30%. Suppose Cold Duck Manufacturing Inc.’s assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support Cold Duck Manufacturing Inc.’s expected sales. $528,000 $408,000 $384,000 $480,000 When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Cold Duck Manufacturing Inc. this year? $51,200 $54,400 $64,000 $70,400 In addition, Cold Duck Manufacturing Inc. is expected to generate net income this year. The firm will pay out some of its earnings as dividends but will retain the rest for future asset investment. Again, the more a firm generates internally from its operations, the less it will have to raise externally from the capital markets. Assume that the firm’s profit margin and dividend payout ratio are expected to remain constant. Given the preceding information, Cold Duck Manufacturing Inc. is expected to generate $______________________ from operations that will be added to retained earnings. According to the AFN equation and projections for Cold Duck Manufacturing Inc., the firm’s AFN is $ _________________
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 50E: Juroe Company provided the following income statement for last year: Juroes balance sheet as of...
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Question
Cold Duck Manufacturing Inc. has the following end-of-year balance sheet:
Cold Duck Manufacturing Inc.
Balance Sheet
For the Year Ended on December 31Assets | Liabilities | ||
Current Assets: | Current Liabilities: | ||
Cash and equivalents | $150,000 | Accounts payable | $250,000 |
400,000 | Accrued liabilities | 150,000 | |
Inventories | 350,000 | Notes payable | 100,000 |
Total Current Assets | $900,000 | Total Current Liabilities | $500,000 |
Net Fixed Assets: | Long-Term Bonds | 1,000,000 | |
Net plant and equipment(cost minus |
$2,100,000 | Total Debt | $1,500,000 |
Common Equity | |||
Common stock | 800,000 | ||
700,000 | |||
Total Common Equity | $1,500,000 | ||
Total Assets | $3,000,000 | Total Liabilities and Equity | $3,000,000 |
The firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, Cold Duck Manufacturing Inc. generated $450,000 net income on sales of $14,000,000. The firm expects sales to increase by 16% this coming year and also expects to maintain its long-run dividend payout ratio of 30%.
Suppose Cold Duck Manufacturing Inc.’s assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support Cold Duck Manufacturing Inc.’s expected sales.
$528,000
$408,000
$384,000
$480,000
When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Cold Duck Manufacturing Inc. this year?
$51,200
$54,400
$64,000
$70,400
In addition, Cold Duck Manufacturing Inc. is expected to generate net income this year. The firm will pay out some of its earnings as dividends but will retain the rest for future asset investment. Again, the more a firm generates internally from its operations, the less it will have to raise externally from the capital markets. Assume that the firm’s profit margin and dividend payout ratio are expected to remain constant.
Given the preceding information, Cold Duck Manufacturing Inc. is expected to generate $______________________
from operations that will be added to retained earnings.
According to the AFN equation and projections for Cold Duck Manufacturing Inc., the firm’s AFN is $ _________________
.
Expert Solution
Step 1
Additional funds needed (AFN) is a financial concept used when a business looks to expand its operations. Since a business that seeks to increase its sales level will require more assets to meet that goal, some provision must be made to accommodate the change in assets.
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