1. The Additional Funds Needed(AFN) equation

Cold Duck Manufacturing Inc. has the following end-of-yearbalance sheet:

Cold Duck Manufacturing Inc. Balance Sheet For the YearEnded 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, assetrequirements, and required funding for the coming year. In the yearthat just ended, Cold Duck Manufacturing Inc. generated $500,000net income on sales of $13,000,000. The firm expects sales toincrease by 16% this coming year and also expects to maintain itslong-run dividend payout ratio of 30%.

Suppose Cold Duck Manufacturing Inc.’s assets are fullyutilized. Use the additional funds needed (AFN) equation todetermine the increase in total assets that is necessary to supportCold Duck Manufacturing Inc.’s expected sales.(Note: Do not round intermediatecalculations.)

$456,000

$528,000

$480,000

$576,000

When a firm grows, some liabilities grow spontaneously alongwith sales. Spontaneous liabilities are a source of capital thatthe firm will generate internally, so they reduce the need forexternal capital. How much of the total increase in assets will besupplied by spontaneous liabilities for Cold Duck ManufacturingInc. this year? (Note: Do not round intermediatecalculations.)

$70,400

$60,800

$76,800

$64,000

In addition, Cold Duck Manufacturing Inc. is expected togenerate net income this year. The firm will pay out some of itsearnings as dividends but will retain the rest for future assetinvestment. Again, the more a firm generates internally from itsoperations, the less it will have to raise externally from thecapital markets. Assume that the firm’s profit margin and dividendpayout ratio are expected to remain constant.

Given the preceding information, Cold Duck Manufacturing Inc. isexpected to generate $???

from operations that will be added to retained earnings.(Note: Do not round intermediatecalculations.)

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

. (Note: Do not round intermediatecalculations.