2. The AFN equation Aa Aa Bohemian Manufacturing Company has the following end-o
ID: 2711771 • Letter: 2
Question
2. The AFN equation Aa Aa Bohemian Manufacturing Company has the following end-of-year balance sheet: Bohemian Manufacturing Company Balance Sheet For the Year Ended on December 31 Liabilities Current Liabilities Assets Current Assets: $150,000 Accounts payable Cash and equivalents Accounts receivable Inventories $250,000 150,000 100,000 $500,000 1,000,000 $1,500,000 400,000 350,000 $900,000 Accrued liabilities Notes payable Total Current Assets Total Current Liabilities Net Fixed Assets: Long-Term Bonds Net plant and equipment (cost minus depreciation) $2,100,000 Total Debt Common Equity Common stock 800,000 700,000 $1,500,000 $3,000,000 Retained earnings Total Common Equity Total Liabilities and Equity Total Assets $3,000,000 The firm is currently in the process of forecasting sales, asset requirements, and required funding for the coming year. In the year that just ended, Bohemian Manufacturing Company generated $400,000 net income on sales of $13,000,000. The firm expects sales to increase by 17% this coming year and also expects to maintain its long-run dividend payout ratio of 30%Explanation / Answer
Total Increase in Asset = Growth rate * Present Total Asset
Total Increase in Asset = 17%*3000000
Total Increase in Asset = 510000
Present spontaneous Liability = Accounts Payable + Accrued Liability
Present spontaneous Liability = 250000 + 150000
Present spontaneous Liability = $ 400,000
Total Increase in Asset will be supplied by the spontaneous Liability = Present spontaneous Liability* Growth rate
Total Increase in Asset will be supplied by the spontaneous Liability = 400000*17%
Total Increase in Asset will be supplied by the spontaneous Liability = 68000
Present Sale = 13,000,000
Present Net Income = 400000
Since Profit Margin is same therefore Present Net Income is also grow by same growth rate for sale
Expected Net Income = Present Net Income*(1+growth rate)
Expected Net Income = 400000*(1+17%)
Expected Net Income = 468000
Dividend Payment = 468000*30% = $ 140400
Expected Addition to retained earning = 468000 - 140400
Expected Addition to retained earning = $ 327600
Bohemian Manufacturing Company is expected to generate $ 327600 from operation that will be added to retained earnings.
Firm's AFN = Total Increase in Asset - Total Increase in Asset will be supplied by the spontaneous Liability - Expected Addition to retained earning
Firm's AFN = 510000 - 68000-327600
Firm's AFN = $ 114,400
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