Question
In: Finance
Green Caterpillar Garden Supplies Inc. reported sales of $743,000 at the end of last year; but...
Green Caterpillar Garden Supplies Inc. reported sales of $743,000 at the end of last year; but this year, sales are expected to grow by 9%. Green Caterpillar expects to maintain its current profit margin of 24% and dividend payout ratio of 15%. The firm’s total assets equaled $425,000 and were operated at full capacity. Green Caterpillar’s balance sheet shows the following current liabilities: accounts payable of $80,000, notes payable of $45,000, and accrued liabilities of $65,000. Based on the AFN (Additional Funds Needed) equation, what is the firm’s AFN for the coming year?
-$161,015
-$126,012
-$168,016
-$140,013
A negatively-signed AFN value represents:
a) A surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends.
b) A shortage of internally generated funds that must be raised outside the company to finance the company’s forecasted future growth.
c) 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, Green Caterpillar is thinking about raising its dividend payout ratio to satisfy shareholders. What percentage of its earnings can Green Caterpillar pay to shareholders without needing to raise any external capital? (Hint: What can Green Caterpillar increase its dividend payout ratio to before the AFN becomes positive?)
78.3%
69.6%
65.3%
87.0%
Solutions
jeff jeffy answered 1 year agoRelated Solutions
1. The AFN equation Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet: Green...
1. The AFN equation Green Caterpillar Garden Supplies Inc. has
the following end-of-year balance sheet: Green Caterpillar Garden
Supplies 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 depreciation) $2,100,000 Total
Debt $1,500,000 Common Equity Common...
Blue Elk Manufacturing reported sales of $743,000 at the end of last year; but this year,...
Blue Elk Manufacturing reported sales of $743,000 at the end of
last year; but this year, sales are expected to grow by 6%. Blue
Elkexpects to maintain its current profit margin of 22% and
dividend payout ratio of 20%. The firm’s total assets equaled
$500,000 and were operated at full capacity. Blue Elk’s balance
sheet shows the following current liabilities: accounts payable of
$80,000, notes payable of $35,000, and accrued liabilities of
$60,000. Based on the AFN (Additional Funds Needed)...
Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that...
Suppose Green Caterpillar Garden Supplies Inc. is evaluating a
proposed capital budgeting project (project Alpha) that will
require an initial investment of $450,000. The project is expected
to generate the following net cash flows:
Year
Cash Flow
Year 1
$350,000
Year 2
$425,000
Year 3
$500,000
Year 4
$400,000
1. Green Caterpillar Garden Supplies Inc.’s weighted average
cost of capital is 8%, and project Alpha has the same risk as the
firm’s average project. Based on the cash flows, what...
Green Thumb Garden Supplies reported the following information for 2017 and 2018.  
Green Thumb Garden Supplies reported the following information
for 2017 and 2018.
2018 2017
Assets
Cash
$ 50,000 $ 45,000
Accounts
receivable
35,000 25,000
Inventory
25,000 20,000
Property, plant, and
equipment
240,000 210,000
Total
assets $350,000 $300,000
Liabilities and
Shareholders’ Equity
Current
liabilities
$ 65,000 $ 60,000
Non-current
liabilities
110,000 90,000
Shareholders’
equity—common
175,000 150,000
Total liabilities and
shareholders’
equity $350,000 $300,000
Income statement for
2018
Sales
$95,000
Cost of goods
sold
45,000
...
Green Thumb Garden Supplies reported the following information for 2017 and 2018.  
Green Thumb Garden Supplies reported the following information
for 2017 and 2018.
2018 2017
Assets
Cash
$ 50,000 $ 45,000
Accounts
receivable
35,000 25,000
Inventory
25,000 20,000
Property, plant, and
equipment
240,000 210,000
Total
assets $350,000 $300,000
Liabilities and
Shareholders’ Equity
Current
liabilities
$ 65,000 $ 60,000
Non-current
liabilities
110,000 90,000
Shareholders’
equity—common
175,000 150,000
Total liabilities and
shareholders’
equity $350,000 $300,000
Income statement for
2018
Sales
$95,000
Cost of goods
sold
45,000
...
The marketing segment sales for Caterpillar, Inc., for a recent year follow: Caterpillar, Inc. Machinery and...
The marketing segment sales for Caterpillar, Inc., for a recent
year follow:
Caterpillar, Inc.
Machinery and Engines Marketing Segment Sales
(in millions)
Building
Construction
Products
Cat
Japan
Core
Components
Earth
moving
Electric
Power
Excavation
Large
Power
Systems
Logistics
Marine &
Petroleum
Power
Mining
Turbines
Sales
$2,217
$1,225
$1,234
$5,045
$2,847
$4,562
$2,885
$659
$2,132
$3,975
$3,321
In addition, assume the following information:
Building
Construction
Products
Cat
Japan
Core
Components
Earth
moving
Electric
Power
Excavation
Large
Power
Systems
Logistics
Marine &...
Blue Elk Manufacturing reported sales of $720,000 at the end of last year, but this year,...
Blue Elk Manufacturing reported sales of $720,000 at the end of
last year, but this year, sales are expected to grow by 7%. Blue
Elk expects to maintain its current profit margin of 21% and
dividend payout ratio of 30%. The following information was taken
from Blue Elk’s balance sheet: Total assets: $400,000 Accounts
payable: $80,000 Notes payable: $35,000 Accrued liabilities:
$70,000 Based on the AFN equation, the firm’s AFN for the current
year is _________.
a. -86,174
b. -105,324...
Blue Elk Manufacturing reported sales of $720,000 at the end of last year, but this year,...
Blue Elk Manufacturing reported sales of $720,000 at the end of
last year, but this year, sales are expected to grow by 8%. Blue
Elk expects to maintain its current profit margin of 23% and
dividend payout ratio of 10%. The following information was taken
from Blue Elk’s balance sheet:
Total assets:
$400,000
Accounts payable:
$80,000
Notes payable:
$45,000
Accrued liabilities:
$80,000
Based on the AFN equation, the firm’s AFN for the current year
is _____ .
A positively signed...
Use the following information to answer questions 7 – 10. Green Thumb Garden Supplies reported the...
Use the following information to answer questions 7 –
10.
Green Thumb Garden Supplies reported the following information
for 2017 and 2018.
20182017
Assets
Cash$ 50,000$ 45,000
Accounts receivable35,00025,000
Inventory25,00020,000
Property, plant, and equipment 240,000 210,000
Total assets$350,000$300,000
Liabilities and Shareholders’ Equity
Current liabilities$ 65,000$ 60,000
Non-current liabilities110,00090,000
Shareholders’ equity—common 175,000 150,000
Total liabilities and shareholders’
equity$350,000$300,000
Income statement for 2018
Sales$95,000
Cost of goods sold 45,000
Gross profit50,000
Operating expenses 15,000
Income before income tax35,000
Income tax expense 5,000...
At the end of last year, Bantern Corp. reported sales per shareof $20.54. Sales are...
At the end of last year, Bantern Corp. reported sales per share
of $20.54. Sales are expected to grow at a rate of 5% per year for
the forseeable future. The company’s profit margin has remained
steady at 18% for the last several years. Analysts expect that
Bantern will have a return on equity of 16% for the forseeable
future.What is Bantern’s retention rate?What is Bantern’s estimated EPS for the next year?What is Bantern’s free cash flow to equity for...
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