$1.$ The Additional Funds Needed $($AFN$)$ equation

Blue Elk Manufacturing has the following end$-$of$-$year balance sheet:

Blue Elk Manufacturing Balance Sheet For the Year Ended on December $31$

Assets Liabilities

Current Assets: Current Liabilities:

Cash and equivalents $$150,000$ Accounts payable $$250,000$

Accounts receivable $400,000$ Accrued liabilities $150,000$

Inventories $350,000$ Notes payable $100,000$

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 $$500,000$ net income on sales of $$14,000,000.$ The firm expects sales to increase by $16\%$ this coming year and also expects to maintain its long$-$run dividend payout ratio of $30\%.$

Suppose Blue Elk Manufacturing$$s assets are fully utilized. Use the additional funds needed $($AFN$)$ equation to determine the increase in total assets that is necessary to support Blue Elk Manufacturing$$s expected sales. $($Note: Do not round intermediate calculations.$)$

$$504,000$

$$456,000$

$$408,000$

$$480,000$

When a firm grows, some liabilities grow spontaneously along with sales. Spontaneous liabilities are a source of capital that the firm will generate internally, so they reduce the need for external capital. How much of the total increase in assets will be supplied by spontaneous liabilities for Blue Elk Manufacturing this year? $($Note: Do not round intermediate calculations.$)$

$$54,400$

$$67,200$

$$64,000$

$$60,800$

In addition, Blue Elk Manufacturing is expected to generate net income this year. The firm will pay out some of its earnings as dividends but will retain the rest for future asset investment. Again, the more a firm generates internally from its operations, the less it will have to raise externally from the capital markets. Assume that the firm$$s profit margin and dividend payout ratio are expected to remain constant.

Given the preceding information, Blue Elk Manufacturing is expected to generate $

from operations that will be added to retained earnings. $($Note: Do not round intermediate calculations.$)$

According to the AFN equation and projections for Blue Elk Manufacturing, the firm$$s AFN is $

$.($Note: Do not round intermediate calculations.$)$