ue Elk Manufacturing has the following end-of-year balance sheet: Blue Elk Manufacturing Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents Accounts payable Accrued liabilities Accounts receivable Inventories Total Current Assets Net Fixed Assets: Net plant and equipment (cost minus depreciation) Total Assets $150,000 400,000 350,000 $900,000 $2,100,000 O $456,000 O $684,000 O $598,500 $3,000,000 Notes payable Total Current Liabilities Long-Term Bonds Total Debt Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 800,000 700,000 $1,500,000 $3,000,000 e firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, ue Elk Manufacturing generated $500,000 net income on sales of $14,000,000. The firm expects sales to increase by 19% this coming year and also pects to maintain its long-run dividend payout ratio of 40%. uppose Blue Elk Manufacturing's assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets at is necessary to support Blue Elk Manufacturing's expected sales. (Note: Do not round intermediate calculations.)
ue Elk Manufacturing has the following end-of-year balance sheet: Blue Elk Manufacturing Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents Accounts payable Accrued liabilities Accounts receivable Inventories Total Current Assets Net Fixed Assets: Net plant and equipment (cost minus depreciation) Total Assets $150,000 400,000 350,000 $900,000 $2,100,000 O $456,000 O $684,000 O $598,500 $3,000,000 Notes payable Total Current Liabilities Long-Term Bonds Total Debt Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 800,000 700,000 $1,500,000 $3,000,000 e firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, ue Elk Manufacturing generated $500,000 net income on sales of $14,000,000. The firm expects sales to increase by 19% this coming year and also pects to maintain its long-run dividend payout ratio of 40%. uppose Blue Elk Manufacturing's assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets at is necessary to support Blue Elk Manufacturing's expected sales. (Note: Do not round intermediate calculations.)
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
Problem 1PS
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Transcribed Image Text: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 Blue Elk
Manufacturing this year? (Note: Do not round intermediate calculations.)
O $79,800
O $60,800
O $91,200
O $76,000
In addition, Blue Elk Manufacturing 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, Blue Elk Manufacturing is expected to generate $
earnings. (Note: Do not round intermediate calculations.)
According to the AFN equation and projections for Blue Elk Manufacturing, the firm's AFN is $
calculations.)
from operations that will be added to retained
(Note: Do not round intermediate
Transcribed Image Text:1. The Additional Funds Needed (AFN) equation
Blue Elk Manufacturing has the following end-of-year balance sheet:
Blue Elk Manufacturing Balance Sheet For the Year Ended on December 31
Assets
Liabilities
Current Liabilities:
Accounts payable
Accrued liabilities
Current Assets:
Cash and equivalents
Accounts receivable
Inventories
Total Current Assets
Net Fixed Assets:
Net plant and equipment
(cost minus depreciation)
Total Assets
$150,000
400,000
350,000
$900,000
$2,100,000
O $456,000
O $684,000
O $598,500
$3,000,000
Notes payable
Total Current Liabilities
Long-Term Bonds
Total Debt
Common Equity
Common stock
Retained earnings
Total Common Equity
Total Liabilities and Equity
$250,000
150,000
100,000
$500,000
1,000,000
$1,500,000
800,000
700,000
$1,500,000
$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,
Blue Elk Manufacturing generated $500,000 net income on sales of $14,000,000. The firm expects sales to increase by 19% this coming year and also
expects to maintain its long-run dividend payout ratio of 40%.
Suppose Blue Elk Manufacturing's assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets
that is necessary to support Blue Elk Manufacturing's expected sales. (Note: Do not round intermediate calculations.)
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Step 1: Formulas.
VIEWStep 2: Computation of Expected Sales of next year.
VIEWStep 3: Answer to part 1. Computation of Increase in total assets.
VIEWStep 4: Answer to part 2. Computation of Increase in Spontaneous liabilities
VIEWStep 5: Answer to part 3. Computation of Increase in Retained earnings.
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