Attempts $$ Keep the Highest $/2$

$3.$ Problem $16\mathrm{.}03$

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AFN EQUATION

Carlsbad Corporation's sales are expected to increase from $$5$ million in $2016$ to $$6$ million in $2017,$ or by $20\%.$ Its assets totaled $$4$ million at the end of $2016.$ Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of $2016,$ current liabilities are $$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 $6\%.$

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 different from the one when the company pays dividends?

I. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.

II$.$ Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.

III. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.

IV$.$ Under this scenario the company would have a higher level of retained earnings, which would reduce 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 assets needed.