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Question
A firm has the following balance sheet:
Cash $ 10 Accounts payable $ 10
Accounts receivable 10 Notes payable 20
Inventories 10 Long-term debt 40
Fixed assets 90 Common stock 40
Retained earnings 10
Total assets $120 Total liabilities and equity $120
Fixed assets are being used at 80 percent of capacity; sales for the year just ended were $200; sales will increase $10 per year for the next 4 years; the profit margin is 5 percent; and the dividend payout ratio is 60 percent. Assume that fixed assets cannot be sold. What are the total external financing requirements for the entire 4 years, i.e., the total AFN for the 4-year period?
a. $4.00
b. $2.00
c. u2212$0.80 (Surplus)
d. u2212$14.00 (Surplus)
e. $0
Answer
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