Cold Duck Manufacturing Inc. has the following end-of-year balance sheet: Cold Duck Manufacturing Inc. Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents $150,000 Accounts payable $250,000 Accounts receivable 400,000 Accrued liabilities 150,000 Inventories 350,000 Notes payable 100,000 Total Current Assets $900,000 Total Current Liabilities $500,000 Net Fixed Assets: Long-Term Bonds 1,000,000
Cold Duck Manufacturing Inc. has the following end-of-year balance sheet: Cold Duck Manufacturing Inc. Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents $150,000 Accounts payable $250,000 Accounts receivable 400,000 Accrued liabilities 150,000 Inventories 350,000 Notes payable 100,000 Total Current Assets $900,000 Total Current Liabilities $500,000 Net Fixed Assets: Long-Term Bonds 1,000,000
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
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Cold Duck Manufacturing Inc. has the following end-of-year balance sheet :
Cold Duck Manufacturing Inc.
Balance Sheet
For the Year Ended on December 31| Assets | Liabilities | ||
| Current Assets: | Current Liabilities: | ||
| Cash and equivalents | $150,000 | Accounts payable | $250,000 |
| Accounts receivable | 400,000 | Accrued liabilities | 150,000 |
| Inventories | 350,000 | Notes payable | 100,000 |
| Total Current Assets | $900,000 | Total Current Liabilities | $500,000 |
| Net Fixed Assets: | Long-Term Bonds | 1,000,000 | |
| Net plant and equipment(cost minus |
$2,100,000 | Total Debt | $1,500,000 |
| Common Equity | |||
| Common stock | 800,000 | ||
| 700,000 | |||
| Total Common Equity | $1,500,000 | ||
| Total Assets | $3,000,000 | Total Liabilities and Equity | $3,000,000 |
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 $350,000 net income on sales of $12,500,000. The firm expects sales to increase by 15% this coming year and also expects to maintain its long-run dividend payout ratio of 45%.
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.
$450,000
$495,000
$540,000
$382,500
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 Cold Duck Manufacturing Inc. this year?
$66,000
$60,000
$72,000
$51,000
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.
Given the preceding information, Cold Duck Manufacturing Inc. is expected to generate
from operations that will be added to retained earnings.
According to the AFN equation and projections for Cold Duck Manufacturing Inc., the firm’s AFN is
.
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