90.2K

Verified Solution

Link Copied!

2. The Additional Funds Needed (AFN) equation Green Caterpillar Garden Supplies Inc, has the following end-of-year balance sheet: 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, Green Caterpiliar Garden Supplies Inc, generated $450,000 net income on sales of $14,000,000. The firm expects sales to increase by 15% this coming year and also expects to maintain its longrrun dividend payout ratio of 45%. Suppose Green Cateplliar's assets are fully utilized. Using the additional funds needed (AFN) equation to determine the increase in total assets that is necessary to support a firm's expected sales, it is projected that Green Catepillar will require in additional assets. When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liablities 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 Green Catepillar this year? $48,000$57,000$60,000$51,000 In addition, Green Caterpillar Garden Supplies 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 proft margin and dividend payout ratio are expected to remain constant. Given the preceding information, Green Catepillar expects to generate from operations that will be added to its existing retained earnings. (Hint: Round your answer to the nearest whole dollar.) According to the AFN equation and projections for Green Caterpillar Garden Supplies Inc., the firm's AFN is

Answer & Explanation Solved by verified expert

See Answer