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1. The additional funds needed (AFN) equation Fuzzy Button Clothing Company has the following end-of-year balance sheet: Fuzzy Button Clothing Company Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Cash and equivalents Current Liabilities: Accounts payable Accrued liabilities $250,000 Accounts receivable Inventories $150,000 400,000 350,000 $900,000 150,000 100,000 Total Current Assets $500,000 Net Fixed Assets: Net plant and equipment(cost minus depreciation) 1,000,000 $1,500,000 $2,100,000 Notes payable Total Current Liabilities Long-Term Bonds Total Debt Common Equity Common stock Retained earnings Total Common Equity Total Liabilities and Equity 800,000 700,000 $1,500,000 $3,000,000 Total Assets $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, Fuzzy Button Clothing Company generated $500,000 net income on sales of $13,500,000. The firm expects sales to increase by 17% this coming year and also expects to maintain its long-run dividend payout ratio of 30%. Suppose Fuzzy Button Clothing Company's assets are fully utilized. Use the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support Fuzzy Button Clothing Company's expected sales. $510,000 $535,500 $433,500 $561,000 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 Fuzzy Button Clothing Company this year? $57,800 $74,800 $71,400 $68,000 In addition, Fuzzy Button Clothing Company 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. from operations that will be added to Given the preceding information, Fuzzy Button Clothing Company is expected to generate $ retained earnings. According to the AFN equation and projections for Fuzzy Button Clothing Company, the firm's AFN is $

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