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1. The Additional Funds Needed (AFN) equation Cold Duck Manufacturing Inc. has the following end-of-year balance...

1. The Additional Funds Needed (AFN) equation

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

$2,100,000

Total Debt

$1,500,000

(cost minus depreciation)

Common Equity

Common stock

800,000

Retained earnings

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 $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 30%.

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. (Note: Do not round intermediate calculations.)

$456,000

$528,000

$480,000

$576,000

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? (Note: Do not round intermediate calculations.)

$70,400

$60,800

$76,800

$64,000

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. (Note: Do not round intermediate calculations.)

According to the AFN equation and projections for Cold Duck Manufacturing Inc., the firm’s AFN is $??????

. (Note: Do not round intermediate calculations.

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