Question
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
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
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