Fuzzy Button Clothing Company

Balance Sheet

For the Year Ended on December $31$

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, Fuzzy Button Clothing Company generated $$400,000$ net income on sales of $$14,000,000.$ The firm expects sales to increase by $15\%$

this coming year and also expects to maintain its long$-$run dividend payout ratio of $30\%.$

Suppose Fuzzy Button Clothing Company's assets are fully utilized. Use the additional funds needed $($AFN$)$ equation to determine the increase

in total assets that is necessary to support Fuzzy Button Clothing Company's expected sales.

$$495,000$

$$540,000$

$$450,000$

$$427,500$

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 Fuzzy Button Clothing Company this year?

$$72,000$

$$60,000$

$$66,000$

$$57,000$

In addition, Fuzzy Button Clothing Company 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.

Given the preceding information, Fuzzy Button Clothing Company is expected to generate

$]$ from operations that will be

added to retained earnings.

According to the AFN equation and projections for Fuzzy Button Clothing Company, the firm's AFN is