Carlsbad Corporation\'s sales are expected to increase from $5 million in 2016 t
ID: 2821549 • Letter: C
Question
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20% its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 59. a. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. b. Why is this AFN diffarent from the one when the company pays dividends? I. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed. II. Under this scenario the company would have a higher level of spontaneous liabilities, which would raduce the amount of additional funds neaded. III. Under this scenario the IV. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed. V. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed. company would have a lExplanation / Answer
Computation of EFN
Increase in Sales = (Expected sales - Current sales) / Current Sales
Increase in Sales = (6000000 - 5000000) / 5000000 = 20%
EFN = Increase in Assets - Increase in Liabilities - Increase in Retained Earnings
EFN = 3000000 * 20% - 500000 * 20% - 6000000 * 5%
EFN = 600000 - 100000 - 300000
EFN = $200000
2. if there are dividends paid then Option III is the correct answer because Dividends will decrease additions to retained earnings and increase EFN required to meet for th next year