Question
Fuzzy Button Clothing Company reported sales of $720,000 at the end of last year; but this year, sales are expected to grow 8%. Fuzzy Button
Fuzzy Button Clothing Company reported sales of $720,000 at the end of last year; but this year, sales are expected to grow 8%. Fuzzy Button Clothing Company expects to maintain its current profit margin of 22% and dividend payout ratio of 30%. The firm's total assets equaled $475,000 and were operated at full capacity. Fuzzy Button Clothing Company's balance sheet shows the following current liabilities: accounts payable of $75,000, notes payable of $25,000, and accrued liabilities of $75,000. Based on the AFN (Additional Funds Needed) equation, what is the firm's AFN for the coming year?
a. -$121,875
b. -$93,750
c. -$84,375
d. -$98,438
Because of its excess funds, Fuzzy Button Clothing Company is thinking about raising its dividend payout ratio to satisfy shareholders. What percentage of its earnings can Fuzzy Button Clothing Company pay to shareholders without needing to raise any external capital? (Hint: What can Fuzzy Button Clothing Company increase its dividend payout ratio to before the AFN becomes positive?)
a. 59.4%
b. 84.8%
c. 80.6%
d. 76.3%
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