Reference no: EM132506257
More on the AFN (Additional Funds Needed) equation
Green Moose Industries reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 7%. Green Moose expects to maintain its current profit margin of 23% and dividend payout ratio of 20%. The following information was taken from Green Moose's balance sheet:
Total assets: $450,000
Accounts payable: $75,000
Notes payable: $40,000
Accrued liabilities: $80,000
Question 1: Based on the AFN equation, the firm's AFN for the current year is?
a. - $138,195
b. - $125,632
c. - $131,914
d. - $144,477
Question 2: 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.
Question 3: Because of its excess funds, Green Moose Industries is thinking about raising its dividend payout ratio to satisfy shareholders. Green Moose could pay out: a. 84.3%, b. 88.7%, c. 66.5%, d. 79.8% of its earnings to shareholders without needing to raise any external capital. (Hint: What can Green Moose increase its dividend payout ratio to before the AFN becomes positive?)