1. The Additional Funds Needed (AFN) equation

Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet:

Green Caterpillar Garden Supplies 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	$2,100,000	Total Debt	$1,500,000
(cost minus depreciation)
		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, Green Caterpillar Garden Supplies Inc. generated $300,000 net income on sales of $13,500,000. The firm expects sales to increase by 17% this coming year and also expects to maintain its long-run dividend payout ratio of 30%.

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 Green Caterpillar Garden Supplies Inc. this year? (Note: Do not round intermediate calculations.)

$68,000

$61,200

$78,200

$64,600