Explore BrainMass
Share

Additional Funds Needed and Projected Retained Earnings

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Dear Sir,

Please solve the attached Financial Management problem related to Financial Planning & Forecasting in Excel Worksheet.

© BrainMass Inc. brainmass.com October 25, 2018, 2:27 am ad1c9bdddf
https://brainmass.com/business/finance/additional-funds-needed-and-projected-retained-earnings-300505

Attachments

Solution Summary

Splash Bottling's December 31st balance sheet is given below:

Cash $ 10 Accounts payable $ 15
Accounts receivable 25 Notes payable 20
Inventories 40 Accrued wages and taxes 15
Net fixed assets 75 Long-term debt 30
Common equity 70
Total liabilities
Total assets $150 and equity $150

Sales during the past year were $100, and they are expected to rise by 50 percent to $150 during next year. Also, during last year fixed assets were being utilized to only 85 percent of capacity, so Splash could have supported $100 of sales with fixed assets that were only 85 percent of last year's actual fixed assets. Assume that Splash's profit margin will remain constant at 5 percent and that the company will continue to pay out 60 percent of its earnings as dividends. To the nearest whole dollar, what amount of nonspontaneous, additional funds (AFN) will be needed during the next year?

Kenney Corporation recently reported the following income statement for 2002 (numbers are in millions of dollars):

Sales $7,000
Operating costs 3,000
EBIT $4,000
Interest 200
Earnings before taxes (EBT) $3,800
Taxes (40%) 1,520
Net income available to
common shareholders $2,280

The company forecasts that its sales will increase by 10 percent in 2003 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 50 percent of its net income as dividends, the other 50 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2003?

$2.19
See Also This Related BrainMass Solution

Additional Funds Needed Equation

Please assist in answering the following questions. Please show work in Excel.
Baxter Video Products' sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $4 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 55%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Round your answer to the nearest dollar.
$
Why is this AFN different from the one when the company pays dividends?

I. Under this scenario the company would have a higher level of retained earnings but this would have no effect on the amount of additional funds needed.
II. Under this scenario the company would have a lower level of retained earnings which would reduce the amount of additional funds needed.
III. Under this scenario the company would have a lower level of retained earnings but this would have no effect on the amount of additional funds needed.
IV. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
V. Under this scenario the company would have a higher level of retained earnings which would increase the amount of additional funds needed.

Problem 12-02. AFN Equation
Baxter Video Products' sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $4 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 7%, and the forecasted payout ratio is 60%. What would be the additional funds needed if the company's year-end 2010 assets had been $4 million? Assume that the company is operating at full capacity. Round your answer to the nearest dollar.
$
What would be the additional funds needed if the company's year-end 2010 assets had been $3 million? Is the company's "capital intensity" ratio the same or different?

I. The capital intensity ratio is measured as A*/S0. This firm's capital intensity ratio is higher than that of the firm with $3 million year-end 2010 assets; therefore, this firm is more capital intensive - it would require a large increase in total assets to support the increase in sales.
II. The capital intensity ratio is measured as A*/S0. This firm's capital intensity ratio is lower than that of the firm with $3 million year-end 2010 assets; therefore, this firm is more capital intensive - it would require a large increase in total assets to support the increase in sales.
III. The capital intensity ratio is measured as A*/S0. This firm's capital intensity ratio is higher than that of the firm with $3 million year-end 2010 assets; therefore, this firm is less capital intensive - it would require a smaller increase in total assets to support the increase in sales.
IV. The capital intensity ratio is measured as A*/S0. This firm's capital intensity ratio is lower than that of the firm with $3 million year-end 2010 assets; therefore, this firm is more capital intensive - it would require a smaller increase in total assets to support the increase in sales.

View Full Posting Details