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, Bohemian Manufacturing Company generated $$500,000$ net income on sales of $$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 $40\%.$

Part $(1)$

Suppose Bohemian Manufacturing Company$$s assets are fully utilized. Use the additional funds needed $($AFN$)$ equation to determine the increase in total assets that is necessary to support Bohemian Manufacturing Company$$s expected sales.

Part $(2)$

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 Bohemian Manufacturing Company this year?

Part $(3)$

In addition, Bohemian Manufacturing 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.

$($A$)$ Given the preceding information, Bohemian Manufacturing Company is expected to generate how much from operations that will be added to retained earnings?

$($B$)$ According to the AFN equation and projections for Bohemian Manufacturing Company, the firm$$s AFN is how much?Ch $12$: Assignment $-$ Corporate Valuation and Financial Planning

Bohemian Manufacturing Company

Balance Sheet

For the Year Ended on December $31$

$\backslash$table$[[$Assets$,$Liabilities$],[$Current Assets:,$$150,000,$Accounts payable,$$250,000,],[$Cash and equivalents,$400,000,$Accrued liabilities,$150,000,],[$Accounts receivable,$350,000,$Notes payable,$100,000,],[$Inventories$,$$$900,000,$Total Current Liabilities,$$500,000,],[$Total Current Assets,,Long$-$Term Bonds,$1,000,000,],[$Net Fixed Assets:,$$2,100,000,$Total Debt,$$1,500,000,],[$Net plant and equipment$($cost minus depreciation$),,$Common Equity,,$],[,,$Common stock,$800,000,],[$Total Assets,,Retained earnings,$700,000,]]$