Reference no: EM132506253
The below questions come from the MindTap -Cengage Learning site, for Chapter 12: Assignment - Corporate Valuation and Financial Planning
The Additional Funds Needed (AFN) equation Cold Duck Manufacturing Inc. has the following end-of-year balance sheet:
Cold Duck Manufacturing Inc.
Balance Sheet
For the Year Ended on December 31
Assets Liabilities
Current Assets: Current Liabilities:
Cash and equivalents $150,000 Accounts payable $250,000
Accounts receivable 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 depreciation) $2,100,000 Total Debt $1,500,000
Common Equity
Common stock 800,000
Retained earnings 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 $13,500,000. The firm expects sales to increase by 16% this coming year and also expects to maintain its long-run dividend payout ratio of 35%.
Question 1. 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.
$384,000
$408,000
$480,000
$504,000
Question 2. 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?
$54,400
$51,200
$67,200
$64,000