4. More on the AFN equation Input Inc. reported sales of $775,000 at the end of last year, but this year, sales are expected to grow by 7%. Input Inc. expects to maintain its current profit margin of 24% and dividend payout ratio of 30%. The following information was taken from Input Inc.'s balance sheet: Total assets: $450,000 Accounts payable: $60,000 Notes payable: $45,000 Accrued liabilities: $80,000 Based on the additional funds needed (AFN) equation, the firm's AFN for the past year is A positive AFN value represents: A surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends A shortage of internally generated funds that must be raised outside the company to finance the company's forecasted future growth A point at which the funds generated within the firm equal the demands for funds to finance the firm's future expected sales requirements Because of its excess funds, Input Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Input Inc. could pay out of its earnings to shareholders without needing to raise any external capital. (Hint: What can Input Inc. increase its dividend payout ratio to before the AFN becomes positive?)
4. More on the AFN equation Input Inc. reported sales of $775,000 at the end of last year, but this year, sales are expected to grow by 7%. Input Inc. expects to maintain its current profit margin of 24% and dividend payout ratio of 30%. The following information was taken from Input Inc.'s balance sheet: Total assets: $450,000 Accounts payable: $60,000 Notes payable: $45,000 Accrued liabilities: $80,000 Based on the additional funds needed (AFN) equation, the firm's AFN for the past year is A positive AFN value represents: A surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends A shortage of internally generated funds that must be raised outside the company to finance the company's forecasted future growth A point at which the funds generated within the firm equal the demands for funds to finance the firm's future expected sales requirements Because of its excess funds, Input Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Input Inc. could pay out of its earnings to shareholders without needing to raise any external capital. (Hint: What can Input Inc. increase its dividend payout ratio to before the AFN becomes positive?)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:4. More on the AFN equation
Input Inc. reported sales of $775,000 at the end of last year, but this year, sales are expected to grow by 7%. Input Inc. expects to maintain its
current profit margin of 24% and dividend payout ratio of 30%. The following information was taken from Input Inc.'s balance sheet:
Total assets:
$450,000
Accounts payable:
$60,000
Notes payable:
$45,000
Accrued liabilities:
$80,000
Based on the additional funds needed (AFN) equation, the firm's AFN for the past year is
A positive AFN value represents:
A surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends
A shortage of internally generated funds that must be raised outside the company to finance the company's forecasted future growth
A point at which the funds generated within the firm equal the demands for funds to finance the firm's future expected sales requirements
Because of its excess funds, Input Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Input Inc. could pay out
of its earnings to shareholders without needing to raise any external capital. (Hint: What can Input Inc. increase its dividend payout
ratio to before the AFN becomes positive?)
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