Answer:
<h2>Bohemian Manufacturing Company</h2>
1. Increase in Assets:
d. $540,00
2. Spontaneous Liabilities:
d. $72,000
3. Given the preceding information, Bohemian Manufacturing Company is expected to generate__$318,458 income from operations that will be added to retained earnings from the total net income of $513,000 ($450,000 x 1.18).
4. According to the AFN equation and projections for Bohemian Manufacturing Company, the firm's AFN is $__149,542__.
Explanation:
Solution
1. Additional Funds Needed = Increase in Assets − Increase in Liabilities – Increase in Retained Earnings, according to xplaind.com.
a) Increase in Assets
= Assets × sales growth rate
= $3,000,000 × 18%
= $540,000
Spontaneous Increase in Liabilities
= Liabilities × sales growth rate
= $400,000 × 18%
= $72,000
Increase in Retained Earnings
= Current sales × profit margin × retention rate
= Current sales × (1 + sales growth rate) × profit margin × retention rate
= $13,000,000 × (1 + 18%) × 3.46% × 60% = $318,458
Additional Funds Needed
= $540,000 - $72,000 - $318,458
= $149,542
2. Data:
Bohemian Manufacturing Company
Balance Sheet
For the Year Ended on December 31
Assets Liabilities
Current Assets: Current Liabilities:
Cash and equivalents $150,000 Accounts payable $250,000
Accounts receivable 400,000 Accrued liabilities 150,000
Inventories 350,000 Notes payable 100,000
Total Current Assets $900,000 Total Current Liabilities $500,000
Net Fixed Assets: Long-Term Bonds 1,000,000
Net plant & equipment $2,100,000 Total Debt $1,500,000
Common Equity
Common stock 800,000
Retained earnings 700,000
Total Common Equity $1,500,000
Total Assets $3,000,000 Total Liabilities & Equity $3,000,000
3. Current profit margin = Net Income/Sales x 100 = $450,000/$13,000,000 x 100 = 3.46%
4. Retention Rate = (1 - dividend payout ratio) = (1 - 40%) = 60%
5. AFN = Additional Funds Needed. AFN is the financial resources obtained from external sources to finance the increase in assets which supports the increased sales level. Note that "Bohemian Manufacturing Company's assets are fully utilized," so we do not envisage the acquisition of more fixed assets. In view of this, the liabilities that are expected to increase are only the Accounts Payable and Accrued Liabilities, two vital sources of supply chain funding.
