A firm has the following balance sheet: Cash $ 200 Accounts payable $ 200 Accoun
ID: 2701599 • Letter: A
Question
A firm has the following balance sheet:
Cash $ 200 Accounts payable $ 200
Accounts receivable 200 Notes payable 400
Inventory 200 Long-term debt 800
Fixed assets 1,800 Common stock 800
Retained earnings 200
Total assets $2,400 Total liabilities & Equity $2,400
Sales for the year just ended were $6,000, and fixed assets were used at 80 percent of capacity. Current assets and accounts payable vary directly with sales. Sales are expected to grow by 20 percent next year, the expected net profit margin is 5 percent, and the dividend payout ratio is 80 percent.
How much additional funds (AFN) will be needed next year, if any?
Explanation / Answer
Cash $ 10
Short-term investments $30
Accounts receivable 50
Inventory 40
Current assets $130
Net fixed assets 100
Total assets $230
Accounts payable $20
Accruals 20
Notes payable 50
Current liabilities $ 90
Long-term debt 60
Common equity 30
Retained earnings 50
Total liab. & equity $230
Net operating working capital (NOWC) is calculated by subtracting all noninterest-bearing current liabilities from current assets required in production.
Current assets required in production = Current assets - shortterm investment = $130 - $30 = $100
Noninterest-bearing current liabilities = AP + Accruals = $20 + $20 = $40
NOWC = $100 - $40 = $60
B) $60.00
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