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4. More on the AFN (Additional Funds Needed) equation Green Caterpillar Garden Supplies Inc. reported sales of $820,000 at the end of last year, but this year, sales are expected to grow by 8%. Green Caterpillar expects to maintain its current profit margin of 20% and dividend payout ratio of 25%. The following information was taken from Green Caterpillar's balance sheet Total assets: Accounts payable: Notes payable: Accrued liabilities: $425,000 $75,000 $30,000 $75,000 Based on the AFN equation, the firm's 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 company's forecasted future growth A point at which the funds generated within the firm equal the demands for funds to finance the firm's future expected sales requirements A surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends Because of its excess funds, Green Caterpillar is thinking about raising its dividend payout ratio to satisfy shareholders. What percentage of its earnings can Green Caterpillar pay to shareholders without needing to raise any external capital? (Hint: What can Green Caterpillar increase its dividend payout ratio to before the AFN becomes positive?) 74.5 87.6 78.8 61.3

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