Cold Duck Manufacturing Inc. Balance Sheet For the Year Ended on December 31 Liabilities Assets Current Liabilities: Current Assets: $250,000 Cash and equivalents $150,000 Accounts payable Accounts receivable 400,000 Accrued liabilities 150,000 350,000 Notes payable 100,000 Inventories $500,000 Total Current Assets $900,000 Total Current Liabilities Long-Term Bonds 1,000,000 Net Fixed Assets: $1,500,000 Net plant and equipment $2,100,000 Total Debt (cost minus depreciation) Common Equity Cormon stock 800,000 Retained earnings 700,000 $1,500,000 Total Common Equity $3,000,000 $3,000,000 Total Liabilities and Equity Total Assets 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 $13,000,000. The firm expects sales to increase by 17 % this coming year and also expects to maintain its long-run dividend payout ratio of 40 % . 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. O $561,000 $510,000 $459,000 O $408,000 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 capit. How much of the total increase in assets will be supplied by spontaneous liabilities for Cold Duck Manufacturing Inc. this year? O $74,800 O $61,200 O $68,000 O $54,400 In addition, Cold Duck Manufacturing 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 firm's profit margin and dividend payout ratio are expected to remain constant. from operations that will be added to Given the preceding information, Cold Duck Manufacturing Inc. is expected to generate s retained earnings. According to the AFN equation and projections for Cold Duck Manufacturing Inc., the firm's AFN is s 3. Excess capacity adjustments Water and Power Co. (W&P) had sales of $1,720,000 last year on fixed assets of $395,000. Given that W&P's fixed assets were being used at only 96% of capacity, then the firm's fixed asset turnover ratio was How much sales could Water and Power Co. (W&P) have supported with its current level of fixed assets? $1,791,667 $1,702,084 $1,881,250 $2,150,000 When you consider that W&P's fixed assets were being underused, what should be the firm's target fixed assets to sales ratio? O 26.46% O 22.05% O 23.15 % O 20.95 % Suppose W&P is forecasting sales growth of 20 % for this year. If existing and new fixed assets are used at 100 % capacity, the firm's expected fixed assets turnover ratio for this year is Several factors affect a firm's need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm's need for external capital-that is, its AFN (additional funds needed). Check all that apply. The firm's inventory turnover decreases, with no effect on the sales forecast. The firm was planning on expanding its production facility, but its management recently decided that the expansion was not necessary. The firm decreases its retention ratio. Dividends to common shareholders are paid out of after-tax earnings. Do these payouts affect a firm's AFN? O Yes, dividends still affect a firm's AFN even though they are paid out of after-tax earnings. ONo, dividends do not affect a firm's AFN, because they are paid out of after-tax earnings