2. More on the AFN (Additional Funds Needed) equation

Blue Elk Manufacturing reported sales of $743,000 at the end of last year, but this year, sales are expected to grow by 10%. Blue Elk expects to maintain its current profit margin of 20% and dividend payout ratio of 15%. The following information was taken from Blue Elks balance sheet: Total assets: $400,000 Accounts payable: $75,000 Notes payable: $45,000 Accrued liabilities: $80,000

Based on the AFN equation, the firms AFN for the current year is _______

A positively signed AFN value represents:

A shortage of internally generated funds that must be raised outside the company to finance the companys forecasted future growth.

A surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends.

A point at which the funds generated within the firm equal the demands for funds to finance the firms future expected sales requirements.

Because of its excess funds, Blue Elk Manufacturing is thinking about raising its dividend payout ratio to satisfy shareholders. Blue Elk could pay out ____ of its earnings to shareholders without needing to raise any external capital. (Hint: What can Blue Elk increase its dividend payout ratio to before the AFN becomes positive?)