Hey, can you please solve this :) It will be dearly appreciated thank you!! Blue
ID: 2738059 • Letter: H
Question
Hey, can you please solve this :) It will be dearly appreciated thank you!!
Blue Elk Manufacturing has the following end-of-year balance sheet Blue Elk Manufacturing Balance Sheet For the Year Ended on December 31, Liabilities Assets Current Liabilities: Current Assets: Cash and equivalents $150,000 Accounts payable $250,000 Accounts receivable 400,000 Accrued liabilities 150,000 350,000 Notes payable 100,000 Inventories Total Current Assets $900,000 Total Current Liabilities $500,000 Net Fixed Assets: Long-Term Bonds 1,000,000 Net plant and equipment $2,100,000 Total Debt $1,500,000 (cost minus depreciation) Common Equity Common stock 800,000 Retained earnings 700,000 Total Common Equity $1,500,000 Total Assets $3,000,000 Total Liabilities and Equity $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, Blue Elk Manufacturing generated $400,000 net income on sales of $13,000,000. The firm expects sales to increase by 19% this coming year and also expects to maintain its long-run dividend payout ratio of 30%.Explanation / Answer
1. Increase in total assets required = 3000000 x 19% = $570000
2. The liabilities that will grow spontaneously due to increase in assets are accounts payable and accrued liabilities. The amount of growth will be = 400000 / 3000000 x 570000 = $76000
3. Increase in retained earnings expected are = New level of sales x Profit margin x (1-Payout ratio)
= 15470000 x (400000/13000000) x (1-0.30)
= $333200
4. AFN = increase in assets increase in liabilities – increase in retained earnings
= 570000 - 76000 - 333200
= $160800