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Cengage MindTap . Cengage les: × ngcengage.com/static/nb/uvindex.html?nbld:593291&nbNodeld-21; 6270947&eISBN-9781; 3056359 75.8 pa MINDTAP Assignment 16-Financial Planning and Forecasting Due on Dec 4 at 11 PM EST Attempts 3. More on the AFN (Additional Funds Needed) equation /3 Aa Aa Bohemian Manufacturing Company reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 10%. Bohemian expects to maintain its current profit margin of 20% and dividend payout ratio of 25%. The following information was taken from Bohemian's balance sheet: Total assets: Accounts payable: Notes payable: Accrued liabilities: 450,000 $60,000 30,000 $75,000 Based on the AFN equation, the firm's AFN for the current year is A positively signed AFN value represents: A point at which the funds generated within the firm equal the demands for funds to finance the firm's future expected sales requirements O O A surplus of internally generated funds that can be invested in physical or financial assets or paid out as O A shortage of internally generated funds that must be raised outside the company to finance the company's additional dividends forecasted future growth Because of its excess funds, Bohemian Manufacturing Company is thinking about raising its dividend payout ratio to satisfy shareholders. Bohemian could pay out external capital. (Hint: What can Bohemian increase its dividend payout ratio to before the AFN becomes positive?) of its earnings to shareholders without needing to raise any Type here to search

Explanation / Answer

AFN = Current level of assets * Change in sales – Current level of liabilities* Change in sales - Increase in retained earnings.

Increase in retained earnings = New Sales * Profit margin * (1- Dividend payout)

=743000*110% * 20% * (1-25%)

= 122595

AFN = = 450000*10% - (60000+30000+75000)*10% - 122595

= 45000- 16500 – 122595

= -94095

PART B

A positively signed AFN represents

A shortage of internally generated funds that must be raised outside the company to finance the company’s future growth

(A positively signed AFN means that the funds required to finance the assets are more than the increase in retained earnings)

PART C

Dividend payout can be upto 82.56%

It is computed as follows

Let the dividend pay-out be x

Required Increase in retained earnings = 45000-16500 = 28500

28500 = 743000*110% * 20% * (1-x%)

28500 = 817300*20% * (1-x%)

28500 = 163460* (1-x%)

1-X% = 17.44%

X= 82.56%

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