You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington...

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Finance

You have been asked to forecast the additional funds needed(AFN) for Houston, Hargrove, & Worthington (HHW), which isplanning its operation for the coming year. The firm is operatingat full capacity. Data for use in the forecast are shown below.However, the CEO is concerned about the impact of a change in thepayout ratio from the 10% that was used in the past to 65%, whichthe firm's investment bankers have recommended. Based on the AFNequation, by how much would the AFN for the coming year change ifHHW increased the payout from 10% to the new and higher level? Alldollars are in millions.
Last year's sales = S₀ $300.0 Last year's accounts payable $50.0
Sales growth rate = g 40% Last year's notes payable $15.0
Last year's total assets = A₀* $500 Last year's accruals $20.0
Last year's profit margin = PM 20.0% Initial payout ratio 10.0%
Select the correct answer.
a. $51.9
b. $46.2
c. $50.0
d. $48.1
e. $44.3

Answer & Explanation Solved by verified expert

4.5 Ratings (715 Votes)

Answer BFor calculation of Additional Funds needed let us assume theratios remain constant Solution Current Asset Growth in SalesNotes Estimated Increase in Asset 1The firm is operating at Fullcapacity 574 40 2The ratios remain constant 22960 Given DataEstimated Increase in Liability Current Liabilty Growth in See Answer

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Last year's sales = S₀	$300.0	Last year's accounts payable	$50.0
Sales growth rate = g	40%	Last year's notes payable	$15.0
Last year's total assets = A₀*	$500	Last year's accruals	$20.0
Last year's profit margin = PM	20.0%	Initial payout ratio	10.0%