3 . 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 $450,000 net income on sales of $13,000,000. The firm expects sales to increase by 16% this coming year and also expects to maintain its long-run dividend payout ratio of 40%.

Suppose Green Catepillars assets are fully utilized. Using the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support a firms expected sales, it is projected that Green Catepillar will require in additional assets.

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 Catepillar this year?

$73,600

$54,400

$70,400

$64,000

In addition, Green Caterpillar Garden Supplies 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 firms profit margin and dividend payout ratio are expected to remain constant.

Given the preceding information, Green Catepillar expects to generate $

from operations that will be added to its existing retained earnings. (Be sure to round your answer to the nearest whole dollar.)According to the AFN equation and projections for Green Caterpillar Garden Supplies Inc., the firms AFN is

.

3. 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 Accounts payable Accounts receivable Accrued liabilities $150,000 400,000 350,000 $900,000 $250,000 150,000 100,000 $500,000 Inventories Notes payable Total Current Liabilities Total Current Assets Net Fixed Assets: Long-Term Bonds Total Debt 1,000,000 $1,500,000 $2,100,000 Net plant and equipment (cost minus depreciation) 800,000 Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity quity 700,000 $1,500,000 $3,000,000 Total Assets $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 $450,000 net income on sales of $13,000,000. The firm expects sales to increase by 16% this coming year and also expects to maintain its long-run dividend payout ratio of 40%. Suppose Green Catepillar's assets are fully utilized. Using the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support a firm's expected sales, it is projected that Green Catepillar will require in additional assets. When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabiliti $408,000 rce of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in asse $552,000 pplied by spontaneous liabilities for Green Catepillar this year? $480,000 0 $73,600 $528,000 0 $54,400 O $70,400 $64,000